Blog

Dave:
Hey, everyone. This is Dave coming at you with another bonus episode. Just a few weeks ago, we released our first bonus episode and it got such great feedback, we decided to do it again. In this episode, I got together with Henry, Jamil, Kathy, and James to talk about whether or not you should still be considering investing in real estate even with today’s crazy market. We were actually just intending to make this as a YouTube video, but it was so good we had so much fun and there was so much value created, we decided to throw it up on the podcast feed so you could all hear it here. That said, if you haven’t already subscribed to our YouTube channel, you should definitely check it out because we are putting out a lot of content really regularly that doesn’t make it here to the podcast channel. We can’t get everything out on a podcast, so there’s a lot more content there on YouTube, and it’s a great opportunity for you to learn more from me and the rest of the crew.
But for now, please enjoy this bonus episode and as always, we’d love to hear what you think. This is On the Market, a BiggerPockets podcast presented by Fundrise. Hey, what’s going on, everyone? This is Dave Meyer and I am here today to talk about a super important topic, whether or not 2022 is a good time to invest in real estate. Believe me, I know there is so much conflicting and confusing economic information, so I brought my friends from the On the Market podcast. We got Henry Washington, Jamil Damji, and James Dainard joining me today to talk about what they are doing to invest in real estate and how you can jump into this market. Yes, you can do it even in this crazy market. In addition to all the insights, the panelists are about to share with you, we also have a ton of Easter eggs and free giveaways because we just felt like it honestly, and we have some amazing things to give away to you.
You can go to biggerpockets.com/datadrop and download all of the rent data that I have amassed for the top markets in 2022. In the episode, we giveaway Jamil’s Tricks to Underwriting. I built a house hacking calculator that you’re getting for free. All of the links are below. You can download them all 100% for free, commitment-free on biggerpockets.com, so absolutely go do that. There’s no reason not to. With that, let’s jump into our question of the day, whether or not you should invest in 2022. What’s going on, everyone? This is Dave Meyer, your host for today’s panel conversation about whether or not right now in this crazy hectic market we see in 2022, if it is still a good time to invest and to have this conversation. I have brought my friends from the On the Market podcast.
We have Jamil Damji, master flipper, and wholesale coming to you from Phoenix, Arizona. Then we have Henry Washington, buy-and-hold and short-term rental investor from Northwest Arkansas, and James Dainard, the certified deal junkie from Seattle, Washington. Thank you all so much for being here. Before we get your takes on whether or not you are investing right now, and whether you think the rest of our audience should be investing right now, I want to just give a summary of what’s going on. We are recording this in pretty much the middle of 2022, and since the beginning of the year, the housing market has changed pretty fundamentally, at least in my mind.
When we started the beginning of this year, we had interest rates that were about 3.1%, which is close to the lowest it’s ever been. Now, as of this recording, it’s above 6%, so they’ve nearly doubled. At the same time, we are seeing that housing prices are still going up. They’re up about 15% year-over-year as of May, which is not as high as it was last year, but is still ridiculous by historical standards. Inflation is running hot at about 8.4%. Inventory is still extremely low, but starting to tick up, and of course, many are calling for a recession. So I think it’s reasonable that a lot of people are wondering is now a good time to invest in real estate? Just quickly, yes or no. Jamil, is this a good time to invest in real estate, and why do you think so?

Jamil:
Absolutely. I think it’s a great time, because you can actually get out there and get some deals. So if you stick to the fundamentals of understanding your numbers, sellers are having conversations they were not having months ago. They are ready to deal. They are ready to take haircuts on their numbers. You can get out there and snag up some amazing opportunities, get at it.

Dave:
I love that, because that is super contradictory to what we hear a lot in the overall narrative about investing right now, but it sounds like you’re finding good deals. We’ll jump into that in a little bit, but Henry, what do you think? Yes or no, good time to invest?

Henry:
Yes, absolutely. Real estate’s cyclical. It’s either going to be hard to find deals and easy to get money, or hard to get money and easy to find deals. That’s how the market works, so jump in either one of those scenarios. There’s always going to be a challenge, no matter what the market’s doing. It’s about figuring out how to overcome that challenge and the best way that fits your financial situation.

Dave:
I love that. All right, James, are you going to be a contrarian here, or you also think it’s a good time to invest?

James:
Yeah, it’s always a good time to invest. Scared money doesn’t make money.

Henry:
Amen, brother.

James:
At any time you need to be ready, or at least for me, I’m always buying. It’s just about adjusting my numbers and changing things, but I am always a buyer in any type of market. It’s just a matter of what kind of deals are coming in my way. Like Jamil said, they are coming. We are seeing them rapidly coming our way.

Dave:
All right. Let’s jump into that idea that there are more deals. Jamil, you mentioned that sellers are now having conversations that they weren’t just a few months ago. Can you tell us a little more about that?

Jamil:
Absolutely. In Phoenix, Arizona, for instance, in the last say six months, if I was trying to buy something at even 70% of ARV, I was having a really difficult time. I’d been adjusting my numbers up and up and the fix-and-flip rehabbers had been doing the same thing over here as well. We were buying speculatively. It was starting to get pretty scary, to be honest with you and we were looking at our projects and we’d done great on them, but we thought, “Man, when we bought this deal, we really were underwater. The day we closed.” Now we’re back to the fundamentals. I’ve been having conversations with real estate agents who are representing sellers right now, who haven’t been able to move their property. I’m getting discounts of 150,000 or more from what their original asking price was just because they didn’t time the market right, so these conversations are happening. They’re happening every single day. My team is cleaning up.

Dave:
That’s really encouraging to hear. I want to just reiterate for everyone listening and watching this that Jamil is not saying he’s going on the MLS and just buying something that is at list price. He’s able to negotiate with sellers because the dynamics of the market have shifted. Six months ago, a year ago, it was probably the strongest sellers market ever, probably. I think sellers are starting to see that the scales are tipping a little bit more in buyer’s favor. In these transitionary periods, it can be an opportunity to buy. James, I know that’s something you always talk about is looking for opportunities in these transitionary periods. You are a buy-and-hold investor. I know Jamil, we might have convinced him to do his first buy-and-hold the other day, but-

Jamil:
Closing July 11th.

Dave:
… are you seeing the same kind of dynamics in the buy-and-hold market as well as in the flipping and wholesaling market?

James:
Yeah. We’re seeing things across the board. It’s kind of amazing, because everyone keeps talking about, “Hey, rates are so high, you can’t make anything pencil,” and that is just not true. We looked at four deals on market on Monday that all cash flow above 10% cash-on-cash returns at 30% discounts and really good BRRR opportunities. We’re definitely seeing that things are balancing out now to where you can look at a property and go, “Okay, does the math work or not?” Then you get the time to evaluate it correctly, and then you can write your opera accordingly. But the market is definitely balancing out and it is making for great opportunities, and that’s why we’re just changing numbers around. We have lots of people reaching out to us on a daily basis right now like, “Hey, what will you pay?” We’re giving them the numbers. They might not be happy with them, but people are definitely starting to play ball.

Dave:
That’s really interesting. I hadn’t even thought about the fact that lower competition in the market right now means that you have more time to underwrite your deals and you can actually sit and think about something probably for the first time in two straight years. Everything was going in four or five days before, so now you can actually have some time.

James:
Yeah. Before you start throwing out hundreds of thousands of dollars, you actually can think about it for a second. The last 12 months was like, “Okay, cool. I’ll buy it. Here’s a half million dollars.” It’s like, what is going on?

Dave:
It is. It is a benefit to investors to be able to have some time to think about this. Now, I’m sure there are people watching this thinking, “These are three successful investors with sophisticated marketing apparatus, great deal flow, and they’re biased,” because you all like real estate investing. That’s your business. Henry, what do you say to that? Do you think there is some validity to the fact that we are all biased, and how do you respond to something like that?

Henry:
I think the bias comes from the success and not just success, but life- changing success that we’ve seen and how this vehicle has not only provided us a return on our investment, but provided us the ability to be good stewards of other people. We spent the first half-hour before we started recording talking about something really kind, James was able to do with some money that he made. So the bias comes from us understanding how powerful of a tool this is to change people’s, not just their lives, but their family tree.
It’s a generational wealth building tool, so I say that if we are biased, that should excite you, because we are biased because it’s such an amazing vehicle. You look at the stock market and you think about you’re building wealth, you’re generating some income. It’s more just like thinking about individually, what that can do real estate gives you that and the ability to be a blessing beyond just yo because of the abundance it can provide. So if we sound biased, we probably are, but that should be super exciting to you, because we just want you to be able to experience some of the amazing things that this tool provides.

Dave:
A lot of people ask me and they say you’re biased or people feel that there’s fear. Basically, they’re thinking that there is going to be a market correction seems to be the idea that people in the real estate space are either deliberately or are blindly ignoring the fact that there is going to be a market correction. The only true answer is, no one really knows what’s going to happen. I certainly have my opinion. I think I know you all have your opinions about what’s going to happen, but there is a genuine fear that people don’t want to buy at the top of the market. I think even people who want to invest in real estate and are bought into the idea long term of investing in real estate say, “Why would I buy right now? Interest rates are high and the market could correct.” So Jamil, I’m curious, how do you handle that fear and how do counsel other real estate investors to managing that?

Jamil:
Well, that fear always exists. I’ve been hearing people tell me that the market was at its peak so many times on the ride up. Look, I can absolutely say that we’ve hit a threshold. We’ve hit a threshold of affordability. We’ve hit a threshold of interest rates. We’re in an interesting spot. At the same time, I believe that when you’re looking at real estate and you’re looking at it over time, we’ve gone up. We always go up, and even though you get these little blips where values can decrease, you got to look at the use case. Like, what are you doing with the property?
My friend, Pace Morby, has a saying, and I love it. It rhymes. He says, “The equity comes, equity goes, but the cash will always flow.” So if you’re looking at a deal and if you’re looking at it from a short-term perspective and you might lose a little bit of money in equity, well, are you still making money in cash flow? You’re really only losing anything if you sell at this time. So I’m about to make a purchase for $12.5 million on a multi-family building. I was talking to James before we started the show today, and does it make me nervous? Absolutely, guys. It, for sure, makes me nervous, but I have a plan and I know the fundamentals of what I’m doing. I love the location of the property.
There’s an absolute opportunity for me to increase rents. I’m going to depreciate a lot of my income, so I’m going to save money on taxes. This makes financial sense. I’m using the fundamentals of real estate to increase my wealth. In a hot market, in a not-so-hot market, I’m still making money. One more thing, yesterday, I was able to trade a $25,000 assignment fee. In this crazy market where all this fear is everybody’s talking about, “Oh my God, this and that,” well, what about the $25,000 that I made yesterday? Is that biased or is that actual money?” That’s money, so if you understand how to do this and how to make proper moves, and if you’ve got the liquidity partners, you’ve got the buyers ready, you’ve got sellers ready to have conversations with you, you can always make money.

Dave:
That’s great advice. Obviously, it really just depends on the strategy, and there’s so many different ways you have to operate differently in each type of market. You said something, Jamil, that you use Pace’s rhyme. You said that the cash will always flow. James, you often hear, and there are fears of recession. I saw something recently where Bloomberg said that the risk of recession is about 75% right now. In my experience, I haven’t seen rent go down, even in recessions. I haven’t lived through as many as other investors have, but you can look at the data for this and see that it hasn’t. Are you afraid that rent is going to go down if there is a recession? If so, how do you mitigate that possibility in your own investing?

James:
I think it depends on the market that you’re in. Some markets are definitely really elevated. People living in secondary home areas that moved out for pandemic reasons, I do think those rents are going to come down. Those are pretty juiced up right now. How we do it is, we focus on where the money is and the jobs are, and we’ve always had good success. Even back in 2008, when the market crashed, I didn’t see a lot of rent drop. They actually stayed very stable. The big difference was it took 60 to 90 days to fill rather than a week or two, and it was just a longer time to fill up your units, but we didn’t see a lot of rent drop. Things that we’re looking at is, like right now, we just wrote an offer on a 90-unit building up in Everett, Washington, but it’s downtown. It’s next to the jobs. It’s still very affordable.
Our average rent or unit per rent or, it’s a 1.75, a foot that we’re performing and out, and so we’re staying where the affordability are. Then, we’re also looking at staying away from different types. I wouldn’t go buy luxury apartment buildings right now, because I don’t want to go chase those really, really high rents. When those rents went from 3,000 to 4,000 in Washington, that’s a huge jump and that can come back pretty aggressively. But the affordable stuff, if you’re around that median home price and you are staying in that median price range, that stuff doesn’t really flex much.
Then, the other thing that we do is we make sure we get good tenants in and we don’t slum board. Everything gets renovated to a high caliber because our quality of tenant that’s coming in is good. They appreciate living in a good spot, so they’ll actually rent quicker and they don’t mind paying more money for a good unit. So everything that we look at right now, we have full stabilization numbers in. We have big budgets, and that deal has to work with all of this in there, or we won’t buy it because we want it turnkey. We want low maintenance. Then also, with inflation going up, we also don’t want this building to bleed us out for two to four years. So by stabilizing these correctly, you get better tenants, rent don’t fall, less money out of your pocket.

Dave:
Love the idea of just producing a great product that attracts a great tenant or a great customer. It’s a surefire way to continue to generate the same kind of income that you are expecting or that you underwrite your deal with. Just for reference, James is right. Just to provide some data here, back in 2008, housing prices dropped nearly 20% nationally and rents, they stayed pretty flat. Of course, it depends market to market, but just on a national basis that is pretty dramatic, because if people do stop buying as many homes, maybe they need to rent. Just for some further context, right now, vacancy, as James is saying, it could start to go up in a recession. It is at its near all time low.
Vacancy is extremely low for the same reasons, or one of the same reasons we’ve seen housing prices go up so much is because there’s just not enough homes. Some of what, basically, what I’ve heard all three of you talking about so far is that we need to adapt. You can’t just go out and buy anything in this kind of market. You have to be smart. That’s always true. I guess maybe the last two years you could have just shot from the hip and done okay, but we’re getting back to the area where we need to be smart and considerate. Henry, what’s one strategy or one niche within the whole realm of real estate investing that you think makes sense in this type of economic climate?

Henry:
Oh man, absolutely. I’m always going to be a big proponent of house hacking, because when you’re looking at a tough economic climate, one of the things you want to be able to do is create more income, or reduce expenses and then be able to invest the difference, some sort of hedge against the economic factors that are pushing against you right now. So when you look at something like house hacking, it is fairly low ceiling to get into it. You can find a deal that works from a house hacking perspective, pretty much on the market and almost any market because you are also going to factor in that you are going to be eliminating a mortgage or reducing it substantially by creating income from that property that you’re living in. It’s also low barrier to entry as far as cost to get into the property, because you can utilize a convention or an FHA owner-occupied loan and get in with 5% down, sometimes even three-and-a-half percent down if you can qualify for an FHA; sometimes even less, if you can qualify for a VA loan.
There’s no down payment, or there’s assistance programs like NACA, Neighborhood Assistance Corporations of America, where you can get into it without having to pay a down payment and they will pay your closing costs. So there’s all these types of programs that you can leverage to get into a multi-family asset or even if it is a single-family home and you rent out rooms, there’s multiple options, and that’s what I like about it is, you can take the place that you live, use it to create income and decrease expenses, which gives you this surplus, if you will, of money that you didn’t have before, which now you can use to either make your ends meet if you’re in that position, or set it aside so that you can invest in something that potentially you’re not living in, but it’s one of the easiest ways to do all of the things, which I think you need to do when economic constraints are tight, which is, save money and figure out a way to make more money.

Dave:
That’s awesome. I think house hacking is just such a no brainer for people, especially if you’re just trying to get started. Rent is so expensive right now, you’re probably not saving that much money renting. Even if you’re fearful of the market, you can probably reduce the amount you’re spending. We actually mentioned this on the On the Market podcast in a recent episode, but I did create a tool. It is a calculator where you don’t just look at whether you buy or own, there’s plenty of things out there in the media where you can do a buyer or a rent calculator, but this is a buy, rent or house hack calculator that can show you if and how much money you can actually save. We will put a link to that in the description below. You can download that completely for free on BiggerPockets. Jamil, what about you? What would your one niche or strategy advice be for people who are looking to jump into real estate investing right now?

Jamil:
Well, I think if you’ve got fear of holding a property and worrying about the equity potentially disappearing, really understanding the fundamentals of wholesaler. I don’t just say that because I’m a wholesaler, I’m saying that because if you are fearful, then trading is the way to go. I was fearful coming out of the last recession because I got burnt in 2008. I lost millions of dollars. This is my second go around, so I learned what not to do last time, and that was collect a ton of leverage and get overextended. I’m not in that position, but I can tell you this, that I traded property on the way down. I traded property at the bottom and I traded property all the way up, and I made money being able to do that. I sustained my life because I was able to understand how to wholesale contracts.
So I’m telling anybody who’s out there right now, if you’ve got fear, if you think, “Hey, I don’t want to buy a property and hold it right now, because I’m worried I might lose 10 or 20% in equity if a correction happens,” understand the fundamentals of wholesale, get yourself involved. You can wholesale a transaction. You can wholesale a house with an earnest deposit and just understanding the values and understanding the fundamentals of what a property is worth. Guys like myself, Henry, James, we’ll buy those deals from you, so you can actually make tons of money understanding how to wholesale properly. I think right now, especially if you have any fear, that’s the way to go.

Dave:
That’s great advice, because it’s relatively low-risk compared to a lot of other real estate investing strategies. Jamil, you previously on our podcast gave away some underwriting advice and a spreadsheet that we were giving away on BiggerPockets. Now that I just talked about giving away my calculator, would it be okay if we linked to that in the show notes as well to that people can go download?

Jamil:
Absolutely. Absolutely. They’re called the Appraisal Rules, guys, and you can follow them to understand how to really hone in on how much a property is worth and what its potential is.

Dave:
Awesome. Well, thank you. You can download that for free, again, in the description below. We’ll have the link there. All right, James, what about you? What strategy would you bank on here in 2022?

James:
All of them, because [inaudible 00:24:16] at the end of the day, a deal’s a deal. It can be a great wholesale deal. It can be a great flip deal. It can be a great buy-and-hold and not all those are the same, but the biggest thing that I have had to do in the last 90 days is really establish my buy box. I see a lot of people, the people with fear are the ones that go, “I don’t know what’s going to happen and I don’t know what I want to do.” So the first thing you want to do is narrow down what you want to do. So for each sector that we work in for wholesaling, we have a buy box like, “Are we going to keep that deal or sell it?” We know what deals we’re keeping, what deals we’re going to wholesale off.
We know if we’re looking at a buy-and-hold, whether it’s a two to four unit or 20, 40, 50 units or above, we’d have our buy box and our process set in play. If it hits this return and we can get this kind of debt, we will buy the deal. Then with fix-and-flip, it’s the same thing, because fix-and- flip, I keep hearing that it’s very risky. It is. It’s always been very risky. It’s been very lucky the last 12 to 24 months. If you flipped a house and you made a lot of money in the last 24 months, half of it was luck. I’ve flipped a lot of homes, and I know that I got lucky the last 24, but you can flip in any kind of market. 2008, we were crushing the market flipping and that market was dropping, like you said, 20% in a year and we still made margins.
So you just have to buy your right plan behind your buy box. We don’t go and buy a house, design the whole thing before we have architect plans back. We want to know where our window schedule is. We want to know how it’s laid out. What’s the actual theme of the house. If we went and designed that down the road, we’re going to have a disaster. So you don’t want to just go buy without really putting together that core fundamental, which is, “This is what we’re doing. This is what I’m trying to accomplish, shrink my numbers down. If I still want to flip, I’m just going with bigger margins now. I want 20 to 25% returns and I want to have 10 to 20% on my construction budgets, and then I’m padded all the way through.” The more people walk away from flipping, the harder I’m looking at it because that’s my biggest opportunity area.

Dave:
This isn’t theoretical, you’re actually doing this. You’re finding these deals right now.

James:
Oh, yeah. The margins we’ve seen have been at least 2X what we’ve been seeing the last 12 months. I got a call yesterday from a seller that we actually gave an offer to nine months ago, a builder beat us out. They beat us out by 50 grand, but they had a very long close and they were supposed to close actually today. The builder just walked away from their earnest money, $40,000, and they’re out that deal. These people have already packed their house up and moved, and they just got notified two days before. So they call us panicked and they say, “Hey, can you buy this?” Then, for us, we’re not going, “Hey, well, how do we get this just for nothing?”
We’re going, “Okay, well, we have to reevaluate this property. Here’s our new margin.” We educated them on what’s going on in the market and they know, but then we educated a little bit more about the impact of rates and the math behind it. Now, they just took an offer, we gave them an offer 150 grand less than we gave them nine months ago. It’s in a great neighborhood, and they’re going to take it because it’s very logical at that point. So for us, by not getting that deal nine months ago, I just made $150,000 more in value. So as things get scarier margins increase. The last 12 to 24 months were not normal.

Dave:
Is the same true for you, Henry? Are you seeing pretty good deal flow? Can you share with our audience, I’m assuming you’re getting pretty good deal flow, but assuming that you are, where are you finding those deals?

Henry:
Yeah. Yeah. Real quick, to piggyback on what James and Jamil both said, the best insulation for risk is to buy great deals. I know that that sounds generic, but in essence, what that means is, you have to figure out how to go find people who have motivation to sell and equity. We’re buying situations. You heard James just explain a situation that caused him to get a good deal. We’re not buying houses, we’re buying situations. So if you can get good at finding those situations, and they need James, they don’t have another option, and so when you create those win-win scenarios by providing people who need to sell with a solution, then you can get good deals.
The better margins you have, the better deal you buy, the more you insulate yourself from problems. So if the market shifts, James can either reduce his asking price and still make a profit. He can potentially put a tenant in there and keep it as a rental. When you have the margins of buying a good deal, then you can have multiple exit strategies and multiple exit strategies is what helps you reduce the risk. If he goes over on his renovation budget, he’s got cushion. It eats up some profit, but if you’re making 80 grand instead of 92 grand because you went over 12K, you’ve given yourself some cushion.
So being able to figure out how to find and purchase good deals or put them under contract, in Jamil’s case, is how you’re going to be able to insulate yourself from the things that most people are scared of when it comes to real estate investing. For me, Dave, we’re absolutely still finding good deals. I am getting more leads coming to me now than before when I was having to go out and push for leads. So now people are trying to come find me, because again, it doesn’t matter what the market is doing, if the market’s high or the market’s low, it doesn’t dictate if a person’s going to be in a tough situation. People get in tough situations, no matter what the market’s doing.
In fact, there’s more tough situations when economic conditions are the way they are now, it creates more difficult situations where people are going to struggle to sell. It also thins the pool. It thins the pool of investors and buyers to the ones that are the most serious and the most prepared. So if you are consistently trying to align yourself with the people who are moving and shaking in the industry with the people who are getting deals done, then you won’t have a problem making money in those environments because whereas, a year or so ago, maybe even six months ago, if you put a house under contract, there was a million hands going up to buy that deal.
There’s less hands going up to buy that deal now, and so the people like Jamil and James and myself who are connected with the people who are ready to jump and do those deals are the ones who are going to make the money. So right now, there’s more deal flow coming. Access to money is what’s getting a little more difficult, traditional money that is. So it’s always going to be a two-pronged approach. You’re going to have to figure out how to solve your deal flow problem and solve your money flow problem so that you can buy those deals. So if you can solve both of those problems, I think you’ll be able to make money in any market, but man, we’re getting great deal flow right now, Dave. Mostly I do direct mail and cold calling, but as of, I would say, the past two weeks, people have been calling me.

Dave:
That’s amazing. For people out there who want to get started, maybe they are listening to this, hopefully they’re inspired by all of you and your wise advice. Jamil, what advice do you think, what would you give people in the next 30 days? If they just want to start and take action and jump in on these opportunities you’re describing, what is one or two steps that they can take right now to move towards that first deal?

Jamil:
Well, direct mail can take some time and cold calling can obviously take some resources and time, but there is nothing that costs less money than going to the MLS. Guys, listen to this. You can go to the MLS right now and look at anything that’s been on the market 30, 60, 90 days. Believe me, realtors right now are more sensitive to this situation than sellers are. You can pick up the phone, you can have a conversation with a realtor right now and ask them, “I see this property isn’t selling, and the world has changed. Is your seller ready to have a real conversation about where this property’s going to trade at?”
Use that listing agent as your buyer’s agent and incentivize them with a double commission and go offer on that property at a number that’s going to make sense for somebody. Come to me and I’ll be your buyer. I’ll tell you what to lock it up at and make a profit. That’s the first step. You can get a deal done right now in a matter of weeks by having that one hack. Go right directly to the MLS, go get some agents, build some rapport with them, have them represent you as well so they’re double incentivized to work with you. Bring me the opportunity and go make a check.

Dave:
All right. That is great advice. I do think, James, you told me the other day that you’re getting a lot of on market deals right now, but do you have any other tips, anything, not just deal flow, anything that you think could help someone achieve that first deal in the next couple of weeks here?

James:
Yeah. Just the first step is to find what you think is a good deal. That is the most important thing. If I don’t know what a good deal is, I can’t go out and go find it at that point. But yes, we are getting a ton of properties on the MLS. Honestly, the deals are really good because it is the market is telling them what the activity is. When someone lists a property on the market and they get zero showings in the first week, they are concerned, especially after what they saw from 90 days ago. So the market really tells them where it’s at, but where we’ve been getting most of our deal flow is, is we’re defining what it is, and we’re looking on the MLS. We’re using call rooms now to get mass coverage.
There’s a company call Magic we just used because we want to be able to hit more people, because as there’s more fear out there and people are wanting to make that next decision, I want to touch more people. So we’re able to hit five times as many more people. We ramp that up, so we’re doubling down on all of our marketing efforts, because as people stop contacting, I’m going to increase my contacts. Then the other thing is, like Jamil said, is talk to real estate brokers. Real estate brokers are the best avenues out there. They’re talking to tons of people.
They have tons of clients that have been thinking about selling for 12 months and now their clients are having FOMO and they’re going, “I missed it,” and they’re rushing to get to the market and they want to rack in whatever equity they still have in that property. So reach out to all your brokers and let people know what you’re looking for. Don’t just say, “I’m out buying deals,” tell them what kind of deals you’re looking for, what returns you want to be at, set the tone and then start talking to everybody and expanding your marketing network, and you will get more opportunities.

Dave:
It just seems like what’s holding so many people back is just the fear without any actual action. The things that you’re talking about, just going and actually calling someone, going and running numbers on a deal, even if you know that’s a bad deal, just teaching yourself the skill to be able to run the deal, know what a good deal looks like, these are the actions that you can take for free. It doesn’t cost anything. There is zero risk in doing research and learning whether you can actually find a deal, and I think a lot of people think, “Oh,” they come up with these ideas or these scenarios in their head, “There’s no good deals,” or, “It’s too risky,” but you don’t actually know that until you go out there and actually do something and actually look at a deal, talk to a broker.
For everyone watching this right now, there are so many free resources we have on BiggerPockets. If you want to find a investor-friendly agent, you can do that for free. If you want to download the stuff I was talking about, you could do that for free. You want to learn how to analyze deals, you could do that for free all on BiggerPockets. If you want to start taking action on real estate, if you agree like James, Henry, Jamil that this is a good time to invest in real estate, definitely head over to biggerpockets.com. It is entirely free. There’s a community of more than 2.5 million real estate investors who have found success in real estate through the same thing that these guys are talking about, and you can do it absolutely too, so go check that out.
James, Jamil, Henry, thank you all so much for being here. This is a super important conversation. If everyone watching this likes this kind of conversation about what’s new, what’s happening in the world of real estate investing, you should check out our podcast, we have one. It’s called On the Market, there will be a link below. We have our own YouTube channel. You can see all of their beautiful faces regularly there making some great content for all of you, and so hopefully check that out. Go take some action. Thank you all for being here. We’ll see you all again real soon. On the Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett. Editing by Joel Esparza and Onyx Media, copywriting by Nate [inaudible 00:37:36] and a very special thanks to the entire BiggerPockets team. The content on the show, On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Andrew Bresee never wanted to work for someone else. “I don’t want to build somebody else’s dream,” he says. “I want to build mine.” And that was his motivation for putting in the work it would take to become financially free just two years after buying his first investment property. 

In an episode of the BiggerPockets Rookie Podcast, Bresee explains the obstacles that could have easily led him to give up on his dream and how you can cultivate perseverance even when your luck seems to run dry. He lets us in on the lessons he learned while developing his investment strategy and even provides the “cure” for analysis paralysis, giving real estate rookies hope that financial freedom is in no way out of reach. “Whether it’s two years, five years, 10 years, it will be much quicker than you think,” he says. 

Starting Small

As a 15 or 16-year-old teen, Bresee was checked out. “All the Ritalin in the world couldn’t get me to focus at school,” he says. But when someone gave him a copy of Rich Dad, Poor Dad, it sparked an instant passion for real estate investing. “I knew from then on I wanted to be a real estate investor, and I didn’t want to work for somebody else for the rest of my life.”

Of course, saving the money he needed to realize his dream would require working several jobs and a lot of sweat equity. Even before Bresee and his wife were ready to purchase their first property with the income they saved, they got some experience rehabbing his parents’ basement, laying the groundwork for the hard work to come. 

“My parents were super generous with us, let us move into the basement, and we took six years off and on, building a full apartment in the basement. So we put in every Sunday for eight hours and then whenever we could during the week we built a full bathroom, a full kitchen, put in a laundry room, put a bedroom, we put a window below grade.” So when they viewed a property with four units that needed love, Bresee had the confidence to move forward. 

Putting in the Time and Rolling with the Punches

Bresee and his wife used all their savings to buy two duplexes, one with an FHA loan and one with a conventional loan. When the transaction was complete, they had only $2,000 left in the bank. But Bresee had the ingenuity to recognize the right strategy that would get all four units in rentable condition. “And [the] first thing we did was say, ‘Okay, which of these four units is in [the] best shape that we can get on the market?’”

Over six months, they moved from one unit to the next, making the most urgent improvements first. “It was just all hands on deck every moment we could possibly put in before work, after work, whatever we could do.”

They made it work by putting in the time and rolling with the punches. For example, when they couldn’t permit one of the one-bedrooms for a short-term rental, they used the monthly or medium-term rental strategy. “I turn over the unit every two, three, or four months and I still get almost as much as I would get as a short-term rental,” says Bresee. And this strategy has lifestyle benefits for the couple as well. Longer-term tenants tend to be more respectful of the landlord next door. 

Bresee says he’s clear in the Airbnb description and title that the unit is ideal for extended stays to encourage bookings for the unit. With all repairs and expenses covered, including his personal internet access, he says, “We’re on pace to make about $1,200 a month.” 

There’s a Time to Hustle and a Time to Delegate

Putting the labor into the first four units left Bresee with a faulty mindset. “I thought I could do more or better than others. So we bought another duplex, and I ended up, when I quit my job, rehabbing that for an entire year.” He was stuck in the mindset that he needed to protect his cash, preventing him from seeing the opportunity cost of finishing the work himself. “And so I should have farmed things out sooner.”

Now, Bresee has put his tools in storage (literally) and resolved to get help from contractors who can finish the work quicker. This allows him to earn more money by getting units ready for rent sooner. Still, there’s a time to hustle, he admits. “If you don’t have a W-2, if you don’t have a ton of extra money,” sometimes putting in the work with your own hands is the only way to get started. 

“We put $40,000 into those four units together [over] six months, and we worked our tails off. That was a good use of my time [back then] because my ability to get another deal was contingent on me getting those units up and going, spending the least amount of money possible because I didn’t have any money left. But later on, it was the exact opposite. I was still in the frame of mind that I was going to do what I did before, and I was not treating it like a business when it should have been.”

That’s where a flexible mindset is important. Evaluate your strategy based on your current financial situation rather than trying to pinch every penny in repair and remodeling costs. “Don’t bite off more than you can chew, but also don’t be stuck like I was in a mindset that held me back.” 

Bresee says if you know what you’re doing and feel confident in the outcome, you can even take the risk of buying your materials with a 0% introductory APR credit card. “And then all you need is cash to pay your contractor,” he says. 

Accelerating Your Success

Bresee says he has the cure for analysis paralysis or overthinking a problem to the point of avoiding action. We’ve already seen that his success was partly due to the extra time he put into work—but he says how and when you make time for your goals is also essential. 

“If every day you just got up 30 minutes earlier, instead of giving your time to a boss,” if you gave “the best moments and brain power of your day” to accomplishing your goals, you’d accelerate your success. “I got financial freedom long before I thought I would. And I believe it’s that consistent daily action. 30 minutes is plenty to make tons of progress.” 

On the other hand, if you don’t make a concerted effort, you’re probably not going to have the life you want. “It’s a snowball, but if you don’t start it now, you’ll wake up at [50 years old] building someone else’s dream.” 

Whatever your motivation for financial freedom, keep it at the forefront of your mind and allow yourself the time to take steps towards your goals. It may require you to sacrifice screen time for the first 30 minutes of each day. In fact, it will probably require a lot of sacrifice throughout the process. But if Bresee’s story is any indication, you can realize your dreams faster than you think. So pour everything you’ve got into the next few years of your life. We dare you to try it and see what happens. 

Running a successful rental property business seems like managing a never-ending list of “to-dos.” First, landlords and rental property owners must deal with collecting monthly rent, screening prospective tenants, and trying to keep tenants happy. Then there are unexpected events to take care of like emergency repairs, tenant disputes, or the lengthy process of evicting a tenant for lease violations. 

Real estate software can streamline many day-to-day chores of being a landlord. Automating tasks like rent collection, tenant screening, maintenance requests, vacancy listing, and accounting can free up much of your valuable time. The result is you have extra time to dedicate to the core of your business. 

For many landlords, switching to digital tools to run a rental business may seem like a huge learning curve. And some may have concerns about security, data processing, or using mobile apps for rent collection or property management.

This article looks at seven ways your rental business could profit from using real estate software solutions. 

Why Use Real Estate Software for a Rental Business?

Real estate software simplifies many recurring tasks you must care for as a successful landlord. But beyond this, there are other incredible benefits. Property management software allows you to access your data securely from any device. In a way, it’s like taking your office with you wherever you are. 

Another compelling reason to switch to digital real estate solutions is collaboration. For example, suppose your rental business has a small team. In that case, everyone can access the specific information they require. This removes the need to send emails and reminders. 

However, software for real estate companies also makes it easier to connect with tenants, listing agencies, and property managers. Just think how much easier it would be to send bulk messages to tenants about upcoming maintenance—or automatically listing a vacant apartment when the lease is soon to expire. 

Seven Ways Real Estate Software Can Make Your Rental Business More Profitable

Property management is a multi-faceted job that requires mastering several skills. So, the more you can use software to automate tasks, the more time you have to run a profitable business. Here are seven tasks you can assign to real estate software. 

1. Processing online tenant applications

Property management software saves you time because the entire application process is online. All documents in the rental process can be stored digitally and signed electronically. This means no more mailing applications, meeting with tenants in person, or manually processing forms. 

One of the benefits of online rental applications is that they remove the risk of human error. For example, information from the rental application automatically populates into the lease agreement. In addition, electronic forms ensure that tenants don’t accidentally leave required fields blank or use scribbled handwriting that is illegible.

2. Tenant screening services

Screening tenants is a crucial landlord task because it’s the only way you can find excellent tenants. However, if you have ever screened a prospective tenant manually, you know how time-consuming the process can be. 

The function to screen tenants can be part of the digital rental application. First, the potential tenant approves the required background checks like their rental history, credit report, and criminal history. You then receive the report in no time at all. And based on this, you can accept or deny their online application.

3. Accepting and tracking maintenance requests

Real estate software helps you keep on top of maintenance requests. Keeping rental units in good order and promptly processing service requests is vital for keeping tenants happy. 

How can a property management tool keep you organized? First, the tenant contacts you via the app, and you can send the request to the appropriate contractors. Then through the app, you can stay in contact with the contractor and tenant about timelines. The beauty of this system is that everything is in one place.

Landlord software applications also save valuable time because you or the contractor don’t have to assess the issue in person. Instead, the tenant can take a photo or video of the damage and send it through the app.

4. Advertising vacancies

Delays in filling vacancies can eat into your profits. However, if you use a suitable property management app, you can automatically list vacancies on several rental listing sites at once. Because all the information is stored in the software, there is no need to continually compose new listings whenever you look for a new tenant.

5. Online rent collection

Rent collection apps help simplify the rental process because they make it easy for tenants to pay rent online. Landlords who get tenants to switch to online rental payments find that they have fewer late payments. 

Here are several reasons why a rental payment service can help you collect rent on time:

• Tenants can set up recurring monthly online payments
• Tenants can make debit card or credit card payments
• Some payment apps report on-time rental payments to the major credit bureaus
• Landlords can send reminders before rent is due

Rent collection apps also give landlords payment controls during an eviction process. For example, you can block a partial payment from a tenant facing eviction. This option prevents the bad tenant from derailing the entire process, ultimately costing you time, resources, and money.

6. Integrated accounting software for landlords

Rental property management software helps you manage all aspects of running a rental business, including keeping financial records in check. For example, accounting software for landlords automatically includes rent payments, mortgage payments, contractor bills, and debts. The handy accounting features immediately give you easy access to your financial data.

There is also a space-saving benefit to using real estate software. Cloud-based software means you don’t have to physically store hundreds—sometimes thousands—of files in an office. This protects the files from getting stolen, lost, or damaged.

7. Data analysis

Data analytics is a way that real estate software can make your business more profitable. Analytics gives you insights into the real estate sector that you could never get if you relied on keeping paper files and processing rent checks. This could give you tremendous leverage to beat the competition. 

Some ways that landlords and rental property owners can benefit from analytics include the following:

• Automated valuation tools
• Revenue optimization
• Property prices indices
• Cluster analysis to identify rental performance in specific areas
• Maintenance management and cost analysis
• Expense tracking

Conclusion

Real estate management software is invaluable for any successful landlord or real estate investor. The good news is that many rental management software solutions are free for landlords and tenants. 

Giving you options to automate laborious tasks saves valuable time and resources. In addition, tenants find the rental experience more enjoyable when they can use an app to make online rent payments, send service requests, and build credit history.

Find financial freedom through rentals

If you’re considering using rental properties to build wealth, this book is a must-read. With nearly 400 pages of in-depth advice for building wealth through rental properties, The Book on Rental Property Investing imparts the practical and exciting strategies that investors use to build cash flow and wealth.

Ashley:
This is Real Estate Rookie, Episode 197.

Brec:
If I lived in a high rise in the nicest part of Atlanta spending I think it was $4,400 a month on rent, and still continued to rent out my place and get that positive cash flow, and how it happened to work out is I would have more money at the end of the day. If I was living the bougie life and still renting at my property. So just this one rental property has given me the freedom to live and not worrying about furnishing something while I’m working a full-time job, and just the freedom its given me has been so liberating and empowering.

Ashley:
My name is Ashley Kehr, and I am here with my Co-Host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, information and education you need to kickstart your real estate investing journey. And I am so happy to be back sitting in front of the microphone with my wonderful Co-Host Ashley, what is going on in your neck of the woods Ash? How are things these days?

Ashley:
Well, I have to say major FOMO after watching yours and Sarah’s Instagram stories at the short-term rental conference in Nashville. How was it? It looked like a great time and that you got to meet and network with a ton of people.

Tony:
It was so cool. We weren’t speaking at that conference. We just wanted to go as attendees. There’s a lot of real estate conferences, but there’s not very many short-term rental conferences. So really cool getting to meet people that we had connected with online and meeting them in person, and it was actually also CMA Fest this week in Nashville.

Tony:
So there was just probably even more live music everywhere than there usually is. So overall, it was just really cool, love connecting with people. And just as a really big thank you, there were so many people that came up to me during that conference that shared that they were inspired by my story and they took action. Actually, I had three separate people that came up to me and said, “Tony, after hearing your story, I started buying short-term rentals and I’ve quit my job.” I had three separate people who told me that. So hearing those stories guys, you have no idea how much gratitude I have towards all of you. So I really do appreciate it.

Ashley:
I know. Doesn’t that just, it gives you that warm and fuzzy feeling that us totally talking nonstop is hopefully actually helping people.

Tony:
Right, right, right, but it was great. I love conferences. I know we’ve talked about the power of networking and stuff like that, but guys, if you haven’t gone to your first short-term rental conference, make sure you go. Obviously BPCON coming up in San Diego. If you guys haven’t gotten your tickets yet, make sure you do that, but that is one of the biggest, the best, real estate conferences out there so we would love to see all your smiling faces there for sure.

Ashley:
Yeah, I think one thing BP does is they do a great job of bringing in the speakers and the content, but also the parties, and it’s not just the parties, but that’s a great way to relax, let loose and connect and meet with people. I think they do a great job of doing that too. So it makes it a lot easier especially if you’re going to a conference alone, you don’t really know anyone. They make it really easy so that you can meet some people and become lifelong real estate friends.

Tony:
Yeah, some of the best conversations at these conferences happen after hours at the bar and you’re chatting with people when everyone’s kind of loosened up a little bit. So yeah, I met a lot of great people. So we hope to see you guys in San Diego at the bars after the conference history.

Ashley:
Yeah. I had a life changing conversation in a pizza restaurant or a pizza parlor on Bourbon Street in New Orleans at 2:00 a.m. at the last BP Conference. So yeah, I definitely agree with that. So on today’s episode, we have Brec Bassinger who is a superhero. Guys, we are so pumped to have our first superhero on the show. She is from CW’s Stargirl and a new real estate ambassador. She purchased her first short-term rental a year ago, and she comes on the show to tell us how she did it, breaks down the numbers and tells you guys, I think gives great advice as to how important running the numbers.

Tony:
Yeah, Brec and I connected on Instagram and we just formed a relationship that way, and I wanted to bring her on because I think, and she shares a lot of her story and how she got started. And I think people hear the word actress or actor, and they immediately think multi-millionaire rolling in the dough. And she shares how she was essentially house hacking a small room in Atlanta when she got started, and that’s what kick-started everything for her.

Tony:
So just lots of good information, and I think one of the things she talks about that hopefully you guys get some value from is how with her irregular income of being an actor she was able to still get qualified for a loan. I know a lot of rookies in our audience don’t have typical W-2 job. So that loan approval process is something she might struggle with. So make sure you guys pay attention for that part of the episode because I think there’s some golden nuggets in there for sure.

Ashley:
Yeah, I really enjoy too that she’s still house hacking too. So she talks about that a little bit too is not only before she even started investing, but she’s still house hacking too in her primary residence. Brec, welcome to the Real Estate Rookie podcast. Thank you so much for joining us today. Can you tell us a little bit about yourself and how you got started in real estate?

Brec:
Hi, I’m Brec. Thank you Ashley for the introduction. Most people know me as an actress. I grew up doing a Nickelodeon show for a few years called Bella and the Bulldogs. Super fun. Now, most recently I play Stargirl on DC’s Stargirl so I get to be a superhero. In real estate, that’s my other passion. I love acting so much, I feel like it really stimulates me creatively, but growing up, I was a mathlete, I was a numbers girl.

Brec:
I was what would be considered a nerd in school, and for me, real estate simulates that side of me. So it’s been really fun to start getting into that. And I feel like stimulating both sides of my brain. How I got into it is during the pandemic, my boyfriend and I, we went on a little trip to Big Bear in California, and it was like an off month. It wasn’t ski season, it wasn’t necessarily summer lake season and we show up and it’s a cute little tiny A-frame home, probably no more than 400 square feet, and we’re sitting there that evening and I start thinking about how much I’m paying for it.

Brec:
And I was just like, “Wait, if I’m spending $500 a night for this little thing, holy crap. They’re making $15,000 a month.” And I just started doing the numbers. And I was like, “Oh wait, I’ve got to do this. I have to get into this.” So within 30 days of that trip, I had moved down to Atlanta to film the second season of Stargirl, made an offer on a condo, found, researched what ROI meant in all the little real estate terms, and within six months, I had my first short-term rental up and going.

Tony:
So can we pause on that because that’s like most people Brec I think don’t take action that fast. We’ve interviewed a lot of people on the show and even in my old podcast, your first real estate investment, I just focused on that first deal. So I know a lot about people’s first deals and most people on average take between 12 to 18 months to get that first deal. But you said 30 days later, you’re already submitting offers and you had that first deal within six months. That’s insane.

Tony:
And I’m appreciative of you sharing that because I want to get into your psyche a little bit. So most people have a little bit of fear or a lot of fear around getting started. Were you fearful? And if you were, how did you get past that?

Brec:
At the time, I didn’t know what to be scared of. So I called it like naive bliss. I just looked at the numbers and was like, “This makes a lot of sense. I want to do this.” And also, I feel like I’m so fortunate in my job that I get to travel a lot for work. So I get to study all these different markets and I have always been into real estate.

Brec:
So every place I go, I check the Zillow all the time, really studying the market. So going into Atlanta back for season two. I did feel confident with that market. So I did have that kind of education and history behind me, but as for buying a property, I knew absolutely nothing. And I just threw myself in and it’s been interesting because now, I’m wrapped from season three of Stargirl so I have time.

Brec:
So I’m really wanting to expand, but now, I do struggle with that fear because I know how many people are in it and what a competitive market it is and things that can go wrong. But I am trying to get back to that naive bliss of just throwing myself into it because it was successful. So why wouldn’t it be successful again?

Tony:
Brec, can we talk a little bit about how you educated yourself? Because I think that’s an important component of this. What kind of steps did you take to make yourself feel confident enough to go out and start submitting offers and eventually closing that first deal?

Brec:
So once again, numbers girl. For me, it’s all about the numbers. So I looked up online what the formula would be, of how do I make a positive cash flow and what the goal percent should be. And that’s just what I did. I got AirDNA, didn’t even know what it was, but just tried to figure out how I could get occupancy rates and daily rates and obviously, stumbled across AirDNA, and I just started plugging numbers in and saw what I needed to pay, and then I was so lucky.

Brec:
I literally just Googled short-term property management Atlanta, called the first lady. Absolutely wonderful woman. Still worked to her to this day. I tell everyone about her. She’s so fantastic. But once again, it wasn’t like, I didn’t know anything. So to me, of course she’s going to be great, and I’m so lucky that she has been great. So I do think a lot of it was just right place, right time. But then also education-wise, just really running the numbers because I trust that aspect of it the most. And so just practicing that until I felt confident with it. So then when I went to Atlanta, I was able to plug in those numbers and figure out if it was going to be a good deal.

Ashley:
So Brec, you said this was your second season that you were in Atlanta that you purchased this property?

Brec:
Yes.

Ashley:
Okay. So what did you do the first season? Did you rent a property there?

Brec:
So I was 19 at the time moving to Atlanta a place I had never been. I hadn’t been on a show in a couple years, also, a really cool thing about real estate. It’s like a consistent income, consistent passive income, we’re acting. It’s like, “Great. I made money this year.” Two years later, haven’t made any money the past two years. So going into first season, I didn’t have the finances to buy or really, the finances to live in a city like that.

Brec:
There’s a lot of corporate housing in Atlanta, furnished which looking back now is a great place to be for something I’m wanting to get into. But at the time, it was really freaking expensive. It’s anywhere from 5,000 to $7,000 a month, and I just couldn’t afford that. So first season, I lived in a not great part of Atlanta with one of my castmates. She was my roommate.

Brec:
A tiny little two-bedroom apartment. I think we were both paying $700 a month. We furnished it ourselves. So while we were working our full-time jobs, we were still focused on furnishing a place we were going to be in for literally six months. Fortunately, with season two, I had some more finances built up from that first season. So that’s when I was able to buy that rental property.

Ashley:
So you purchased this property to live in for season two, and then after that, it became the short term rental. Do you think it was an advantage that you got to live in it for a little bit first and be like, “Okay, you know what? This would be great to add.” Or, “These are the things that I need for the property.”

Brec:
Yeah, absolutely, because at that point it was very livable. The kitchen was I love cooking, so it was ready for a chef to come in and cook whatever he wanted. I plan on doing that again. So say if Stargirl God willing gets picked up for a fourth season, I fully plan on doing that exact same thing, using that six months to furnish it and then renting it out.

Tony:
So Brec, I’m glad you shared your experience about getting started because I think there’s this misconception about people who are in the entertainment industry or who are in sports that as soon as they get started, there’s just this big windfall of cash, and they’re rolling in the dough and flying private jets.

Tony:
We had Terry Harris, he was on episode 153 and he was a professional basketball player. And I think anytime people hear professional athlete, there’s this idea of what kind of lifestyle they’re living. And he was very open and candid and said that he was only making $35,000 a year as a professional athlete in the minor leagues for the NBA. And so I just want our listeners to understand that just because we have professional athletes or people that are in the entertainment industry, it doesn’t mean that their financial position is all that much more different than a lot of you that are listening today.

Tony:
So I appreciate you sharing that Brec because I think it helps set the table for the listeners. So Brec, obviously you started off in season one sharing your space and doing all this stuff. How was it progressed? What was that progression like for you?

Brec:
I think I mentioned, but something I really love about real estate investing is that passive income. And because of that third season was, it’s just so funny looking at the three years how much I’ve grown and gotten to grow. And I do give a lot of it to that second season decision of getting that rental property because after I moved away second season and started renting it out, it was really successful. I was getting positive cash flow every month.

Brec:
And to me, how I came back home to Texas and I bought a house here and basically what I was making off that property was covering my mortgage here at home. So I was like, “I’m getting this house for free.” That’s just how my brain works. But then going back to third season, everyone’s like, “Oh, you’re going to let, you’re going to live in the property you bought.” And that was my original plan was like, “Well, I might as well live there while I’m there and then rent it out while I’m not.”

Brec:
Then I sat down and I ran the numbers and I ran how much I would have in my bank account, the end if I paid the mortgage each month and just lived there versus if I lived in a high rise in the nicest part of Atlanta spending I think it was $4,400 a month on rent and still continued to rent out my place and get that positive cash flow. And how it happened to work out is I would have more money at the end of the day if I was living the bougie life and still renting out my property. So just this one rental property has given me the freedom to live and not worrying about furnishing something while I’m working a full-time job. And just the freedom its given me has been so like liberating and empowering.

Ashley:
Brec, you have mentioned this several times throughout the episode and we’re not even that far in, but run the numbers, and I think that is-

Brec:
I’m so annoying about it.

Ashley:
No, I think that is so powerful because Tony and I often get asked, and I’m sure you’re going to get the ask this now too is someone will come to you with two different scenarios and maybe somebody listening is like, “Should I do this or should I do this?” And the answer is to run the numbers just like you did. You looked at the numbers and ran them for each scenario and figured out, “Okay, at the end of the day, I’m going to have more money doing this scenario.” And that’s such a great way to make a decision when it comes to investing and what your investing strategies should be. So keep saying that. We need it to really hit home with everybody.

Brec:
Run the numbers.

Tony:
Yeah. Ash, let me ask something on top of that. I literally just came back from a short term rental conference last night and there was a guy in the crowd and he stood up and he asked a question to all the speakers and he was like, “Hey guys, I’m new, but I found this amazing property. I’ve ran the numbers. My returns are going to be super solid.” And he was like, “But I’m not sure if I should move forward with it.”

Tony:
And everyone on stage was like, “Well, why not?” They were like, “If the numbers work, why wouldn’t you move forward with it?” And he was like, “I don’t know.” He was like, “I just don’t know if there’s things that I don’t know.” And he was just slacking himself out. But for me, and it sounds like for both of you as well, it’s like I try and remove all the motion out of my decision making when it comes to running my real estate business because I think emotion is what gets us caught up in making bad decisions, but if you can sit back and look at the numbers because the numbers don’t lie, the numbers do not lie.

Tony:
I think if the numbers make sense and that’s your sign to move forward and Ash, I know you and your spreadsheets, you like to get down and make everything happen, right? So I’m just glad that we’re talking about the number’s perspective for our rookie listeners.

Ashley:
Yeah Brec, I want to ask you, so you had said you were a mathlete, you’re been into math and you’re knowledgeable about it, but what about somebody who isn’t? Maybe there’s somebody out there listening right now that is not good with math. What would be your advice to them as to how they can get better at running the numbers or maybe different tools or resources that you’ve used to get better at analyzing?

Brec:
Well, for me, like I said, when I got started, I knew absolutely nothing even when I had made an offer on the property, still I was just, very little, but I feel like there’s books out there that explain what those numbers are that we’re talking about and how to use them and how to work with them. So just educating yourself by reading, listening to podcasts like these, and then also there’s online calculators. So I’ve definitely used those to speed things up, and if you do that enough, I feel I can watch it, look at it happen, then maybe you can learn to do it yourself, but save time, use the calculator.

Tony:
Yeah. So speaking of calculators, we obviously have to plug the BP calc. So if you guys don’t know, BiggerPockets, you can use it free up to five times. It’s a property analysis calculator. I use that as I started my career as a real estate investor. Ashley’s used it in her real estate investing career. And to me as a newbie, it’s one of the best tools you can use. So you guys get five free uses of that. So go over to biggerpockets.com, there’s a whole calculator section, you guys can check it out there.

Brec:
I didn’t even know that. And look, see?

Tony:
There you go. There you go. And some people like to build it themselves. I’ve met other people that build out their own calculators and do it that way, but if you’re not that analytical person, or you don’t have that skill set, there are so many tools out there that can help you. Brec, I wanted talk a little bit about how you’re you’re financing these deals, because obviously you don’t have like traditional W-2 income. And I think some of the people in our audience have that same situation. So what was the process like for you in order to actually get qualified for a loan to purchase that first property?

Brec:
It was really, really stressful because of my unique finances and how the money comes in. It was really hard for me to get the loan. Now I do traditional financing my first property because I lived in it. Some, it was a second home mortgage, but then moving forward, there’ll all be investment loans. It was just a good learning experience for me because in my head, if I showed them that I could pay for the property in cash, that I would get it.

Brec:
And my lender literally told me, she’s like, “You could pay for this property five times over again in cash. But if you don’t show a steady income, we will not give you a loan.” And that was such an eye-opening experience like, “Oh, okay.” So for me, I’ve just been after that experience these past two years, I’ve been very mindful of how to better lay out my money for it to look prettier for a lender and look more steady even though to be realistic, my income’s no more steady than it was, and then also having this one rental property and showing that on my history, I’m hoping will help me in the future as well.

Tony:
Yeah. Ash, I just want to ask your perspective, how do you balance because obviously, one of the big benefits of investing in real estate are the tax advantages. And you’re able to reduce your taxable income, but you can swing the pendulum maybe too far where if you’re showing this really small silver of income, it gets difficult to qualify for the loan. So Ash, I’m just curious, you’ve purchased a lot of properties. What has your strategy been for trying to balance those two things?

Ashley:
Well, I think my situation’s a little different than Brec because I worked at W-2 as I built my rental portfolio. So I had that W-2 for a long time to support a steady income and then build my rental portfolio, but I haven’t had … I still have a W-2 where I pay get paid $22 a week just to do a couple odds and end. So that is no difference at all to my income. So I technically still have a W-2.

Tony:
That’s $22. We could go real far, right?

Brec:
That’s it.

Tony:
Yeah.

Ashley:
So, but this will be my first, this will be about two years now because it was February 2020 when I stopped my W-2. So it’s been about two years now where I have my full tax returns, but I honestly haven’t gone gotten residential, traditional, conventional mortgage in that timeframe at all. I do more commercial where they’re more interested in the property itself and what the numbers look like and that I’m an experienced investor and that I have a history of being an investor than they are more concerned about seeing an actual W-2 income. So if you are someone who’s in Brec’s position, or even mine, you go to the commercial side of lending and it’ll be easier to get financing than if you’re going to the residential side.

Tony:
Yeah, and I’m so glad you brought that up because obviously, a lot of folks that are listening, they have this goal of leaving their day job. But to your point Ash, there is tremendous value especially if you have a healthy W-2 income to hold onto that for a while. So Kell Delaney, he was a guest on the podcast and I was actually just hanging out with him at the short-term rental conference over the weekend.

Tony:
And he’s up to like, I don’t know, six or seven short term rentals. I’m sure making pretty healthy cash and I asked him like, “Why are you still at your job?” And he was like, “Honestly, it’s because we’ve been able to bank roll so many of these loans because of his day job.” So he was like, “I just want to max that out when I get to that point, then I’ll leave.” So if you’re in a position or you’re in a job that you can tolerate maybe for a little bit longer, using that steady income is going to really, really help unlock some future lending options for you.

Tony:
Just one other thing that you mentioned Ashley that I also want to highlight is that there are other lending options outside of the traditional like, “Hey, how much money do you make?What’s your debt to income ratio?” For us in the short term rental space, you’re starting to see more of these DSCR loans or debt service coverage ratio loans where they’re saying, “I’m not looking at Tony as a lender. I don’t care about Tony’s debt to income. I don’t care about what his tax returns say. What I’m looking at is how much income would this short term rental produce and what is the required debt coverage on that property?” And if the property’s projected to do more income, then what the debt service is, then banks are willing to lend out on that. So guys, there’s so, so many other options in the marketplace for lending.

Brec:
I do have a question for you Tony.

Tony:
Yeah.

Brec:
With that, will they take in consideration short term rental rates or will they only do that long term monthly income? Because I’ve run into that before.

Tony:
Some lenders will do both. Yeah, so just to clarify Brec’s question. So when lenders are looking at projecting the income on a property, some lenders will only look at what that property will rent for as a long term rental. So if you had a tenant in there for 12 months who signed a lease, other lenders will look at your projected short-term rental income.

Tony:
So there are some lenders that specialize in short-term rentals that will do their own analysis to say, “Hey, here’s what we think this property will do as a short-term rental.” Now, here’s a little hack and I actually just learned this from my friend TJ Tijani. So if you guys don’t know TJ, he’s a short-term rental operator based out of Houston. But TJ said what he does is he will sign … He has two entities. So he has one entity that purchases the property and holds the mortgage, and then he has his short-term rental property management company which signs the lease to his entity that owns the property.

Tony:
So entity B is leasing from entity A and he just signs a long term lease between those two entities. And now, he can go to a bank and show like, “Hey, I’ve got a long term lease in place, help me refinance this debt.” So there are so many different ways to do that.

Brec:
That is so smart. Yeah.

Tony:
So smart, right? Blew my mind when I heard that the other day. So there are lots of options here.

Brec:
It seems simple, but it’s like, “Why didn’t I think of that? That’s amazing.”

Tony:
Yeah.

Ashley:
Okay. So Brec, you purchased that first property and then you went and purchased your primary now in Texas. Do you have that rented out when you are in Atlanta or are you just keeping that strictly your primary?

Brec:
Well, I am gone for quite a bit of time. So my brother actually lives with me and he pays rent. I was like, “I don’t care who you are. I’ll take your money.”

Ashley:
So you’re house hacking too, you didn’t even tell us that.

Brec:
No, I know. Yes. I actually did use that term the other day. And I was like, “I hope I use that correctly.” I don’t even know, but yes, I’m house hacking my own home with my brother. Woo-hoo, but it’s actually been, it’s worked out so great. Yeah.

Ashley:
So is there one of these properties that you wanted to go into the numbers with us and break it down?

Brec:
Yeah, absolutely. I’d love that.

Ashley:
So we know it’s in Atlanta.

Brec:
Yes.

Ashley:
In Atlanta. What was the purchase price?

Brec:
273,000.

Ashley:
Okay. And how did you pay for it?

Brec:
Conventional second home mortgage loan.

Ashley:
Okay. And you’re doing it as a short term rental. On average. What is your daily rate would you say?

Brec:
Obviously, it depends on the month. I’d say if average would be around $175.

Ashley:
And then how did you find the deal? Was it on MLS or a different source?

Brec:
I did go through a traditional real estate agent, but actually, it was through my property manager who already managed a property in this condo. So when she saw one was available, she sent it to me. So I give so many props to her because it’s extremely hard to find a condo that will allow short term renting.

Ashley:
Okay, that’s really cool. I didn’t realize when you had told us you Googled and found your property manager, that you did that during your initial research before you even purchased a property. So yeah, you want to start there is to talking with her and how you actually got her to send you the deal. We talk about networking and getting people on your team, but you hadn’t even worked with her yet, and here she is sending you the insider information on this property for sale.

Brec:
Yeah, looking at it from her perspective, I feel like that’s very smart of her because she has this potential new client. Why not send them a very lucrative looking property so you can manage it? So to me, it makes sense.

Tony:
Brec, can you tell me was that initial conversation like when you contacted that property manager? Because I’m sure they get all kinds of people reaching out to them. What did you say to build that relationship?

Brec:
So I called her and at that point, I didn’t know what you paid a property manager to manage your short-term rental. I really didn’t know much, but she was just so open and honest. And one of the first things she said, she’s like, it’s one woman. And right now, I think she’s managing 37 properties. And she was like, “I can send you any one of my current clients, and you can hear it from them.” Basically how amazing she was.

Brec:
And then I started asking the questions. At this point, I hadn’t checked AirDNA. I didn’t know what it was, and so I asked her, “Well, what’s your average occupancy rate among your properties?” And she was like, “80%.” And I’m like, “Oh.” And then I plugged in the numbers. I was like, “Oh, wait. That’s really good.” And then she’s like, “My average ratings are 4.9 star.” I’m like, “Wait, I think that’s also really good.” And she’s like, “And 90% of my properties are super host.”

Brec:
I’m like, “Wait, that’s also really good.” So she actually was one of my main sources of education I feel like and really explaining to me the tips of it. And once again, my naive bliss, maybe she just believed it because I went in with such confidence like, “Yep. I have 30 days to find a property. I have 50 days to close because I’m moving down here in 45 days. So let’s go.” And I just said it was such confidence I guess she believed me.

Tony:
I only asked that question because I know a lot of rookie investors, they have this imposter syndrome. I get people that ask this question like, “How do I get an agent to take me seriously? Or how do I get a wholesaler to take me seriously or property manager to take me seriously?” And on the flip side, I’ve also met agents and property managers who say that. Yeah, they’re always trying to filter out the people that are tire kickers versus those that are serious potential customers. So yeah, I do think it was maybe your level of detail in your line of questioning and maybe the confidence that you had when you reached out to her that communicated how serious you were?

Brec:
Yeah, in all careers, I’ve always had this attitude of not like I want to do it, I’m going to do it. Even when I was an actress or even when I was young … Even when I was an actress, when I was young, probably five years old, people would come up to me and they would ask, “Oh, what do you want to be when you’re older?” Kid you not, my answer would be, “I don’t want to be anything. I’m going to be an actor.”

Brec:
Obviously, I was a very sassy child. And I think just going into that, or going into this, I had that attitude as well. I was like, “Well, why not me? I’m going to do it. This sounds like a good opportunity. Sure. Yes.” And looking back, I think that was extremely helpful. And it’s something I feel like knowledge sometimes can create fear, at least from my experience. So it’s good for me to say these things out loud and remind myself and rationalize my fears to get back to that point because I think that’s a good attitude to have.

Ashley:
So did you have this same attitude when you found your lender for the deal? The confidence going in is, “I’m buying a house, give me the money.” And how did you find your lender?

Brec:
It was someone my dad had used for years. And so I was like, “Great. Family recommendation.” My parents just bought a home and sold their home and this person was not involved because they were not great, but not everyone can be great like my property management. I can’t always get that lucky. It was so extremely hard. I feel like every single day I would … Well, first of all, they wouldn’t call me back.

Brec:
But at this point, I really did. I was moving down there two days before I was supposed to close. And so it’s not like I could not go through with this and then try to find a new property. My time restraints were very slim. And so I would just tell her, she’s like, “Well, I don’t think it’s going to work. At 2020, you’ve made no money this year.” And I was like, “Well, figure it out. What do you need from me? Do I need to get a letter of intent from my employer?”

Brec:
Just tell me what you need and I will get it to you. I worked with someone who was also really great, but I still, that is the one thing I feel like I haven’t found is a good lender who almost understands my finances because I get they’re very, very unique, but I do need to find that. That’s something I still am in search for.

Ashley:
So how did you solve that problem? Obviously that’s amazing that you were persistent and you got the deal done. So how did that happen? What did you end up? Did you supply the solution or did they eventually come back to you with things that you could do?

Brec:
Oh, no. I called our show runner and I was like, “Can you send me a letter saying that I’m going to be working for the next year?” And he is like, “Okay.” And then I called my account. I’m like, “Can you send a letter that I’ve been making money consistently since I was 15?” And he was like, “Okay.” So I just kept getting stuff because I’m like, “No, this …” At this point, this was my only option. I was running out of time.

Brec:
So I was going to make it work even if at that point, even if I had to go to a family member and be like, “You go in on this with me. Let’s co-own it, and then I’ll pay you back.” I was so set on getting this property.

Ashley:
I think that’s a great lesson right there is that persistence and also being determined. You could have easily have just, “Wow. They said no to me.” “Oh, I guess I’m not getting the property.” And given up right there, but look at just giving that little bit of extra effort. And I think that being told no turns people down and then that fear of rejection again and again, and that can really stumble people from getting started in real estate investing because there are going to be these obstacles, there are going to be these roadblocks.

Ashley:
And as soon as you can get over one, each obstacle and each dilemma and each problem gets easier as you go on because you don’t care if people say no because just like Brec here, you’re going to be persistent, determined, and you’re going to find a way to make it work. So I think that’s a really important lesson for everyone to think about. If someone tells you no, especially when you are so close to the finish line of getting this deal done, ask them what can you do to make it work, or like Brec, just go out and find your own solution and get as much data and information and overwhelm them with that.

Tony:
Ash let me add on to that because this is just more of a mindset thing, not even necessarily related to real estate, but I read this quote, I don’t even know, it was a long time ago, but it said a smooth sea never made for a skillful sailor. And that always stuck with me because it’s like I think in life, we have the tendency of trying to avoid adversity and obviously, no one wants bad things to happen to them, but I think a healthy level of adversity in your life is a good thing.

Tony:
You have to go through these things that are difficult, things that you can’t find the solution to initially, or things that are challenging because it does build that muscle for you. And it always makes me go back to Nick Cooley’s episode. I can’t remember what episode he was, but if you guys look up Nick Cooley, he talks about his ice cream sandwich story. And Nick and I literally almost cried together on this podcast because we both shared these moments where we went through this extreme adversity, but we both felt like better men and better people because of those moments.

Tony:
So for all of you guys that are listening, all of you rookies that are listening, I think accept and anticipate some adversity as you go through this real estate investing journey, but also understand that it’s going to make you a better real estate investor, it’s going to make you a better person once you get through the other side. And there, now I’m off my soapbox now, so.

Brec:
I love it.

Tony:
Brec, back to-

Brec:
No, I love it. That saying is going to stick with me as well. That’s really beautiful.

Tony:
Yeah. Yeah, Nick Cooley was episode 109. So if you guys go back to that episode, you guys can hear his story. Brec, before we move off of this deal, you said that it was a second home loan. So can you maybe give some details? How was that different from a regular loan? What was the down payment? What was the interest rate?

Brec:
Yeah, I believe correct me if I’m wrong for a second home. It has to be minimum 10% down. I’m sure it could be lender to lender as well. I had to put 20% down because once again, they didn’t trust that I could do this. Also looking, I was 20 years old at the time and I’ve run into my age being a big thing. Even I’ve met with a few.

Brec:
I’ve gone into new builds and there will be the representer there and they just speak down to me. I’ll go with my mom and they immediately go and talk to my mom and not me and my mom, she knows it. It gets me riled up. She goes, “Oh no, no, she’s actually the one interested.” And they just turn around. Anyway, I don’t know. I got lost. I got lost on my soapbox of me being young and looking 15.

Tony:
No, I love that. I love that. But no, I get your point. It is most 10% down, second home or I’m sorry, most second home loans are 10% down, but yeah, it’s obviously going to vary from borrower to borrower and lender to lender in terms of what that person’s unique situation is. But you bought this you said during … What was the year you bought this in?

Brec:
Okay. It was the end of 2020.

Tony:
Okay. So interest rates were still pretty low. Do you remember what you-

Brec:
3.125. It’s what I got on both my home mortgages and now they’re going up. And I was like, “I thought this was the norm. I thought they were always 3%.” No.

Tony:
Yeah. And honestly, we picked up a lot of our portfolio during that time of really, really low interest rates as well. Our best interest rate on one of our short term rentals is 2.625%.

Brec:
Oh, shut up, that’s amazing. That’s stupid good.

Tony:
That’s like almost free money. So it’s like yeah, we were scooping them up last year. So Brec, I want to run out this deal. Are you able to share some numbers? You’ve had it a little while now, do you know what the property’s gross and approximately what that net looks like?

Brec:
Yes, I wrote it down so I would be prepared. So my down payment plus furniture all in was 60,000 almost exactly. So last year, I didn’t rent it out every month. So I took the average of what it rented out per month, and I made approximately 22,000 in positive cash flow. And then with the equity, I built it, it would’ve been about 45% return on my 60,000.

Tony:
You’re saying it real casually, but that’s pretty impressive especially given the fact that you didn’t even rent it out the entire year.

Brec:
No, I know.

Tony:
That’s amazing. And sorry, give us some context. You said it it’s in Atlanta, but are we in downtown Atlanta in the suburb somewhere?

Brec:
I’m in Atlanta proper. So there’s Midtown which is where you want to be. I’m right north of that, but I’m still actually considered a Midtown location. So it’s a wonderful location. I actually got so lucky. I feel like I bought in at the right time because mine’s a two bedroom. A one bedroom sold two months ago I want to say for 375,000.

Ashley:
Wow.

Brec:
Mind you, I bought a two bedroom just a year prior for 273,000. So I’m also there’s been this thing in my head where like, “Now, it’s probably worth north of $400,000.” So take that $120,000 worth of equity. Plus the $75,000 that I’ve made, that’s almost $200,000 that I’ve made off of $60,000 in two years. So in reality, I’m looking at a 300% return which because I’m like, “I got to keep doing this.”

Tony:
And there’s the tax benefits, right? We talked about that earlier, but now you’re also going to be able to use that to in a smart way like offset some of your other income as well. So that’s why we love real estate.

Brec:
It’s so great. It’s so fun. I love it.

Ashley:
So Brec, are your plans for the next deal? Are you going to buy again in Atlanta or are you going to look into a different market?

Brec:
So I’m living in Texas now and I use my travel, my work always as an excuse to study the market that I’m in whether it’s a three day vacation in Destin, I’m on Zillow, I’m on Airbnb. I’m studying what’s going on because I just think it’s really fun. So I have really been setting the market I’m currently living in which is like the Dallas-Fort Worth area. And right now, I’m narrowed down to two things and whatever better opportunity comes up first, that will be my next deal.

Brec:
So either a lake lakefront property in the Dallas-Fort Worth area, so more of a vacation destination type thing or back in Atlanta because I have my team set up there. That’s so wonderful, and there’s two very particular areas in Atlanta that I’m looking, but still sticking with the short term rentals.

Tony:
Can I ask one last question before we move off of this deal Brec. So I know you have the property manager in place right now. A, what drove your decision to hire that property manager versus trying to figure it out on your own and then B, as you continue to scale, is your plan still to use third party property management?

Brec:
So when I’m in Atlanta filming, I work on average a 14 and a half hour day, and that’s not fully working. I’ve worked 80 hour weeks before. So realistically, when I’m working, I don’t have the time and mental capacity to also be managing a property. Right now though, I’m on hiatus.

Brec:
So in the area that I’m in, I’ve done some research looking for that property manager because it is important for me to have them set in stone before making an offer on a place because it can all happen so quickly. And then you have this property, but you either don’t have a team to help you rent it out or you’re just not set up to do that. So I’ve done quite a bit of research, reached out to different companies.

Brec:
I reached out to five different property management companies in my area. One followed up, only one response and then didn’t respond after that. And I’m like, “These are not the type of people I want managing my property when it’s supposed to be a 24 hour service to those tenants.” So actually, there’s been a lot of conversation between me and two of my friends to start my own property management company. My dad and brother also both do real estate investing.

Brec:
So right there, I have some secured Airbnb properties. So I was like, “Okay, you already have about, you could have easily five properties in just a couple of months.” But once again, it’s a bit nerve wracking to do that. It’s something I know absolutely nothing about on how to do that, but so I’m currently working on learning how to do that because that is one of my next goals.

Ashley:
It’s exciting building something, isn’t it? That’s what I [inaudible 00:42:39].

Brec:
It is. I told my dad because he’s very … And he also knows, it’s very kind of him, but he knows how much my time is worth at this point. Just like how many things I have my fingers in and how successful a lot of it has been. And he told me he’s like, “Could this property management company make you a million dollars?” And I was like, “Absolutely.” He’s like, “Okay, fine. Do. I don’t care.” I’m like, “Great.”

Ashley:
Brec, we’ll have to have you back on in a year to talk about starting a short term rental property management company.

Brec:
Please. And I’m going to annoy you guys whenever I have questions or need help. This has been so fulfilling and exciting to me because at this point, I haven’t really had anyone to talk about this stuff too. It’s just in my head and I’ll talk to my boyfriend about it and half the time I’m going, “I’m sorry if I’m annoying you.” He’s like, “No, just keep talking. It’s fine.” So I’m totally going to take advantage of this new relationship and friendship. So thank you guys.

Ashley:
Yeah, good.

Tony:
Of course.

Ashley:
Okay. So we have a rookie exam Brec. So hopefully you still have all of your math knowledge because this is definitely a hard exam.

Brec:
Oh no.

Ashley:
Okay. So these are a couple questions that we ask every guest onto the show, and the first one is what is one actionable thing rookies should do after listening to this episode?

Brec:
Just because we’ve been talking about it so much, go do your best. Find a property online and run the numbers on it. If you have to look up a formula, if you have to go use a calculator, I don’t care. Just go run the numbers on it. Get a good little practice in, it’s fun.

Ashley:
That is a perfect answer.

Brec:
Does that work?

Ashley:
Yeah, we can’t hit home enough. Run the numbers. Practice, practice, practice.

Tony:
All right Brec, so question number two. What is one tool software app or system that you use in your business?

Brec:
AirDNA.

Tony:
I love that. For folks that aren’t familiar with AirDNA , can you explain what it is and how you use it?

Brec:
Yeah. So you pay, once again, correct me if I’m wrong, I feel like you all are the professionals, but you pay $20 for X amount of properties in whatever location you want. And it shows you, you can click on each property that’s listed on Airbnb and it shows you the average occupancy and the average nightly rate. So you can use all of those to get an idea of what your property would do.

Ashley:
Okay. And the last question is where do you plan on being in five years?

Brec:
In five years? 28. I’m kidding.

Ashley:
We’ve never had that answer before actually, surprisingly.

Brec:
I’m quite a literal person. I’m going to manifest it. I’m going to say owning my own property management company and at least 10 short-term rentals in my portfolio.

Tony:
All right Brec. Well, you passed the exam so great job, but I want to take it to our next segment which is the rookie request line. So every episode we give our listeners a chance to ask questions. So for those of you that are listening, if you want your question featured on the show, give us a call at 888-5-rookie, and there’s a chance we might use your show or I’m sorry, there’s a chance we might use your question on the show. So Brec, are you ready for today’s question?

Brec:
Yes.

Zoe Gatlin:
My name is Zoe Gatlin. I’m just outside of Austin, Texas, and my fiance and I are trying to get into our first real estate deal. We have a good lump sum of money saved up, but we’re both self-employed so we don’t have the money to show for it. I recently got a W-2 job to proof of income, but I have no credit. I don’t have bad credit, I just never built my credit. My fiance does have credit. Is there any way we can use his credit and my income source to get into our first deal or what’s the best way to start building my credit? The quickest amount? Thanks guys. Love your podcast.

Brec:
Yeah, I feel like you spoke on this a little bit earlier Tony, but more that investment lender situation where they focus more on the numbers and less about you as an individual. To me, that seems like a good fit.

Tony:
Yeah, and even your experience Brec about just finding the lender and like maybe there’s some additional documentation you need to provide or there’s other ways to prove income even outside of the W-2. So yeah, like Brec said, we talked a little bit about that earlier, but hopefully that points you in the right direction. Anything to add onto that piece Ash?

Ashley:
No, I don’t think so. I think you guys covered it is finding ways to work with the lender. One thing that I have realized has helped build a good relationship with the lender. So they want to work with you is that when they do ask for things, be super, super timely in getting that information back to them because, or else, they’re just waiting around and the quicker and the more responsive you can be and keep those lines of communication open with your lender, they’re going to be way more appreciative when you can get things back to them in a timely manner than them sitting around and waiting for you for days or weeks or months, even to get information back from you. And so they don’t have to nag you for it to keep your file moving.

Tony:
And we talked about this in the past before too, but it’s like don’t always walk into a bank or to your lender and say, “Hey, I want a loan, this investment loan.” Walk into your lender’s office and say, “Hey, I’m looking to buy an investment property. Here’s how much cash I have. Here’s what my credit situation looks like. What is the best lending option for me?”

Tony:
And then put the onus on them to figure out how to get you the right loan for your specific situation, but I think all too often, we hear these different loan products and we get tied up in using the product and the product doesn’t matter. We’re not real estate investors because of the loan products. What’s most important is getting the deal done. So give them your situation and put the onus on the lender, on the bank, on whoever you’re working with to find the right solution for you.

Ashley:
And a lot of these smaller local banks too, they have a lot more flexibility than bigger banks because they actually have a board of directors that goes and approves every loan or every option that goes through that bank. And some of the loans they’ll keep in house or they’re not tied to federal and government loans like Fannie Mae and Freddie Mac. So definitely check your small local banks and ask them what options do you have for what I want to do.

Tony:
Last thing before we move on. I’ve shared the story before, but my very first, the first three deals that I did in Louisiana, they were all zero money out of pocket. The bank financed the purchase price and the rehab. And it was because I walked into them and said, “Hey, I’m looking at buying and rehabbing some properties in your area. What kind of loan product do you have?”

Tony:
And they were like, “Here you go. We’ll cover everything if you find a good enough deal.” And I wouldn’t have been able to find that if I was just going in and saying, “Hey, I want a 20% down loan to buy a property.” So always going with your intentions and let them guide the conversation.

Ashley:
Before we close out the show. I want to give a shout out to this week’s rookie rockstar. So this is Jay Mennel, closed on a cabin that he’s going to turn into a short term rental. This is his first short-term rental and fifth property overall. So congratulations Jay. And he says that he’s hoping to follow in the footsteps of Tony Robinson. So even more exciting, but congratulations.

Tony:
We’re a size 14 man. So those are some big footsteps [inaudible 00:50:09]. I’m kidding.

Ashley:
So if you want to be featured as our week’s rookie rockstar, please post in the Real Estate Rookie Facebook group what you have going on, what is your weekly win. Even maybe a lesson learned. We love to share those too because we think it’s always important to not only share the wins, but to share things that you may have learned across your investing journey or you can send a DM to me and Tony @wealthfromrentals or @tonyjrobinson. Well Brec, thank you so much for joining us. Can you let everyone know where they can reach out to you and find some more information about you?

Brec:
Yeah. Thank you. I am on Instagram @brecbassinger, my name and I’ll go ahead and link this, Stargirl season three coming up this Fall.

Ashley:
Well, thank you so much for joining us. We loved hearing about your first property, your short term rental, and also your house hack. Make sure you guys check out Stargirl too coming out with the third season. So thank you very much for joining us. I’m Ashley at Wealth from Rentals and he’s Tony at Tony J. Robinson, and we will be back on Saturday with a rookie reply.

David:
This is the BiggerPockets podcast, show 631.

Tom:
As long as we’re building the asset and liability side of our financial statement, the balance sheet is where our focus should be and the cash flow statement, not the income statement. The income statement could really well be zero, and for a lot of people, it is. But for a lot of professional real estate investors, that income statement show zero because their expenses completely offset their income. But their balance sheet keeps increasing, their net worth keeps increasing, and their cash flow keeps increasing.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast, here today with my co-host on the BiggerNews episode, Dave Meyer. Dave, how are you doing today?

Dave:
I am doing great, David. It is a pleasure as always to be back. Thanks for having me.

David:
Yeah. I met one of your biggest fans ever yesterday. I was in Long Beach, California, doing a meetup and we did a client appreciation event for the people that have bought houses with my team in Southern California, and I met a young man named Christian who works for Activision. He’s probably geeking out here in his name right now.
He does analytics for that company where he helps basically the executives decide where they should be allocating resources and money based on how well the different products or the different things that they have implemented have performed, and he would not stop talking about you. I think he just wanted to get to me in order to get to you, because he’s such a big fan of you as the VP of data analytics, and as a data scientist, he was in love with you.

Dave:
Well, it worked, right? You mentioned him on the BiggerPockets podcast now. That probably worked better than his wildest dreams. But thank you, Christian. I really appreciate that. Yeah, hopefully people are learning about being a data-driven real estate investor to hoping … Obviously, David, you’re very analytical person as well, but hopefully our brains combined are helping people understand how to run the numbers and use some more advanced analytics to fuel their investing and to feel confident in their decision making.

David:
Yeah. That’s what Christian came to me and said that he liked about my books was that they were basically built on systems and data. This is how you take information and use it to make decisions, and then this is how you create a pattern out of that, which is all that a system really is. I thought, “Yeah.” It’s funny to me that I forget some people don’t think that way because we just naturally do it.
In today’s show, Dave and I combine our data brains and create a huge data transformer that will vanquish the foe of poverty and financial slavery. I really hope that you like it. All right, I’m going to do today’s quick tip, and I was trying to think about how can I do this in an Optimus Prime voice, but I realize I cannot replicate a robot in the same way that I can replicate Batman’s.

Dave:
Please try. Come on.

David:
Today’s quick tip will be delivered to you by Dave Meyer.

Dave:
I’ll just give you a regular old, good old quick tip. You should check out all the free stuff we are giving away, and by we, I mean all of the BiggerPockets podcast. I know last week Brandon was back on and gave away an awesome masterclass on building your social brand. An example of great free information that you should be taking advantage of on my show, On The Market, we’ve been giving away all sorts of data. We have data drops spreadsheets you can use.
Most recently we have a calculator you can do to analyze house hacking versus buying versus owning. I know all the other shows are giving away stuff too, and it’s 100% free. Don’t be silly. Go download these things right now. They’re on the BiggerPockets’ website. Just go to BiggerPockets.com/podcasts, and there is a page there for each of the BiggerPockets’ podcasts that you know and love and you can find amazing free stuff there. Go check it out.

David:
Yes. The website has so much more to offer than just this podcast. I think about BiggerPockets like this podcast is how … When I first found out about it, it’s just like when I signed up to work at a gym. I just saw that they had weights and that’s all I would use, and then one day I realized, “Oh my God, this gym has a masseuse, they have a physical therapist, they have a sauna, they have a pool. They have all of these other things that will supplement my fitness journey that I never even use because I didn’t bother looking outside of the one thing.”
Well, that’s what the website is. We’ve got tools, we’ve got calculators, we’ve got blogs, we’ve got an agent finder to get you connected to the people that you need. We have all kinds of stuff to open your mind and broaden your horizons. Get on the website and see everything that we have to offer. Mr. Dave Meyer, what has the On The Market research team been up to this month?

Dave:
One thing that I personally have been looking into and we actually show that just came out yesterday with Ken Johnson, who’s a professor at Florida Atlantic University is rent verses buy. This is a time tested debate. I’m sure you’ve had this conversation with people a million times. But usually, there’s at least a clear option, and right now with rent going up so quickly, and we’re seeing home prices go up as well, they’re both at all-times high, it brings up a very reasonable question of, what is the right living situation for people right now?
Even if you’re not an investor yet, have you run into this at all, or are any of your clients running into the situation where they’re saying, “Oh, it’s actually probably better to rent right now than to buy just where we are in the market cycle?”

David:
I’m hearing people say that they believe the market’s going to continue to go down. People who think that prices are on the way down, yes, they’re saying, “I’m going to rent because I’m waiting. I think that I’m going to have more opportunity later.” But I still haven’t seen anybody where renting is cheaper than buying if they buy right. If you’re trying to buy a luxury property, a really nice, comfortable home, renting is usually cheaper.
But what I’ve learned about real estate is that we often look at it in terms of money, but money is very difficult to tie down because the value of it changes so quickly. It’s often better to look at in terms of time. If you look at how rents are increasing, many times people will find that by year three, four or five, buying is cheaper than renting, and then for the rest of the time you own that house, it becomes exponentially more cheap to own than rent.
That’s before you include a strategy like house hacking. A lot of people can go out there and buy a property, rent out part of it. They’re not living for free, but they’re living for less than what their rent would’ve been, particularly in the more expensive markets like Denver and in the Bay Area. Any market where you’re seeing a lot of appreciation, the rents are going up as well.

Dave:
Totally. I think that a lot of the media, or people who just aren’t as familiar with real estate investing, put up this false dichotomy. It’s buy or rent.

David:
Yes.

Dave:
As real estate investors, we know there are other options, right? Like you just said, house hacking is a great option. Actually, the first investment I bought, I was going to house hack, and then I found a cheaper apartment and then never wound up house hacking it and just renting it out and continuing to rent myself because it was a better financial decision. I think it’s a good question and it is worth. I think people really …
The question is good because people should be examining what the cheapest way for them to live is because it’s such a big expense that if house hacking or if renting and reinvesting the money into something else is a good option for you, that can free up a lot of cash with which you can invest or improve your financial position. I do think it’s worth people examining, but the dichotomy of just renting versus buying is too simple.
Listen, we had this guy, Ken, come on the show and you should listen to the show, it’s great. But he was talking about how renting is better in a lot of cities if, and only if, all the money you would put down to buy a house, you reinvested into the stock market. That’s cool, right? But realistically, do you know yourself, if you had that extra money lying around, would you actually invest 100% of it or would you have some lifestyle creep?
There’s so many variables here. But what I think we’re trying to show in On The Market is that there are gray areas and there are other ways to analyze this. Actually on the show, I also give out a calculator. It’s really cool. If you listen to the show, you can get it for free. It’s a buy hold house hack calculator. Because you see on these financial websites, they have these ways for you to analyze buy or hold.
But we want to come up with a way that people can analyze the investing element of that too and weigh that in their living arrangement situation. That’s what we’ve been working on. We’re going to be dropping a lot of data about it. I encourage everyone to check that out and see for themselves what the best living situation for them is to optimize their financial position.

David:
Yeah. My philosophy is if you are trying to win at the money game by depriving yourself of X amount of lattes per week to save money, you’re already doing it wrong. Saving money on $5 drinks is not the way that you get ahead in life, and I’m not a coffee drinker. This isn’t coming from a place of I love my coffee. Your housing expense is such a bigger chunk of where your money’s going, that putting all of or most of your energy towards that is way more fruitful than looking at how you can save on really tiny things.

Dave:
Totally. If you make a bad decision … It’s not bad, whatever. A financially stretched decision about your housing situation, it really becomes almost futile to try and save money on things like coffee, like you’re saying. Because you’re spending … The difference between spending 1,500 bucks on rent and 2,000 bucks on rent, that’s 500 bucks. That’s $15 a day on coffee. No one spends that much.
You can’t cut that out on simple things. That’s why Scott Trench and his Set for Life book talks a lot about this, and he explains it more articulately than I. But I think it’s with good reason. This is why you should be thinking about your housing as the best way to cut costs and to reconsider where your budget is going.

David:
I just got an analogy for this.

Dave:
Oh, I can’t wait.

David:
Having a comfortable living situation that takes up all your money and then trying to save on the coffee you’re drinking is like buying a Hummer instead of a Prius and saying, “Well, I’m just never going to roll the windows down so that my gas mileage is better.”

Dave:
Oh yeah. That will definitely work. They make a lecture covers now though. You could get the lecture cover, I think. You can [inaudible 00:10:30] have it all, David.

David:
Yeah. At some point I’m not going to be able to use any form of gas mileage analogy, which is a bummer because it works so good for everything related to savings.

Dave:
Yeah. It really does. But I get what you’re saying, right? It’s like you’ve already made the decision and you’ve already committed so much money to such a large expense. It doesn’t really matter what else you do, the damage is already done.

David:
Yes.

Dave:
Listen, some people want to live in a comfortable home. Totally get it. But I think it’s really worth analyzing this. You have to weigh these things, right? If you want to live in a comfortable home, you can do that, but it will probably decrease your ability to invest in real estate and you can make those decisions, and there’s probably a comfortable middle ground. Doing the analysis, thinking about the math behind this, it’s not so simple.
I’ll just say that’s not so simple as looking at what your mortgage payment would be and your rent payment would be. That’s not what it is. You have to think about what you would be doing with your excess income. How much is the market likely going to appreciate? Given the topic of what we’re about to talk with Tom, are you getting the tax benefits of home ownership? It’s not a simple question, and I think worthwhile taking the time to look into the data, and that’s what we’re trying to do over here at On The Market.

David:
Especially when you look at the price of rents over time. I’ll wrap up with. This nine years ago I bought a fourplex in Manteca, California, which is not known for having incredibly high rents. It’s not like the Bay Area. When I bought it, the rents were at $700 a unit. I just put one up for rent this month at 1,850. Whoever that tenant was was paying $700 and that same person is now paying 1,850. For them, if they were like, “Well, I could go buy a house, my payment would be 1100, but I could rent for 700, renting is cheaper,” how much different is that when your rent is 1,850 and you can no longer buy a house with a mortgage of 1,100 that’s locked in place?
At the same time where you’re saving money in rent by owning real estate, it doubles its value because you’re also making money off other people that are paying rent. It’s not just that you’re saving money when you buy investment property, you’re also increasing the amount you collect every single year. Like you were saying Dave, many times and you just look at right off the bat year one, renting verse owning, renting appears to be cheaper. When you give a time horizon, that gets crushed as far as the efficiency of owning real estate.

Dave:
Totally. I rent right now. For those of you listening who don’t know this, I live in Amsterdam. I moved here about two and a half years ago. We just wanted to move into something furnished, make it easy moving internationally, and it’s been fine, it’s been great, it’s been really interesting experience being a renter again. But I will say what drives me nuts is my lease is coming up at the end of the year and the market’s totally changed, and I have no idea what my landlord is going to raise my rent to.
I’m usually on the other side of this, and I’m someone who likes to plan financially, figure out how much money I’m going to invest next year, how much I’m going to allocate to this asset class and this asset class, and I have no idea what my expenses are going to be. Even though that renting might be a better financial situation for me, I’ve been kicking myself for not buying a few years ago, just for the predictability of it, and knowing what my own housing expenses are going to be is really valuable to me.

David:
That is a great point. If people are interested in saving money, they are in for a treat because we are about to transition into bringing in today’s guest who makes his money in life by teaching other people how to save money in taxes. Taxes are usually the biggest expense that any of us has in life or in business, and decreasing that is much like decreasing your housing expense, which is the biggest expense that you have in your personal budget. Buckle your seat belt, strap yourself in and get ready for a wild ride as we bring in Tom Wheelwright. Tom Wheelwright, welcome back to the BiggerPockets podcast. How are you today, my friend?

Tom:
I am good. So good to be with you guys.

David:
Yeah. The last time that we met, we spoke about the economy in general. We talked about how important it is to save in taxes, and I think most importantly, in our conversation, we revealed the relationship between investors or citizens and the government. Like it or not, or maybe you love it, you have a relationship with your government and you are all about teaching people how to make that relationship mutually beneficial, or at minimum, beneficial for us as opposed to just the government.
In a default state, the government’s benefiting much more than we are. When we’re in a W-2 position, they’re taking our taxes right out of our check. We don’t have write-offs. Could you share a little bit about your philosophy on this topic?

Tom:
Yeah. Actually, it’s interesting. I actually think the government benefits more when you’re an active partner than when you’re a silent partner. First, we establish we’re all partners with government, right? You know that the minute you look at your pay stub and it says FICO withholding, et cetera, and it’s a deal where you don’t get to not be a partner with the government. Period. You are a partner with the government.
The question is silent partner, active partner. The government actually … While you think about, “Well, do they really care,” they actually make more money with active partners than they do with silent partners. Actually, that’s a big topic in my new book, The Win-Win Wealth Strategy, is that I actually looked at seven different investments and six of them, okay? Which one of them is real estate. Six of them, the government wins more with active partners than it does if it just takes money out of your paycheck, because …
Remember, the government’s giving a relatively small incentive and they’re getting huge impacts in the economy. This is not just, oh, well, the government allows it. This is actually the government encourages it, and I think that’s a big mind shift that we need to get to in society where this is not something where the … It doesn’t matter. I’m sorry, but it doesn’t matter who the administration is. Right? This administration uses tax incentives and wants tax incentives just as much as the last one.
They just want different tax incentives. The key is just understand you’re a partner with the government, you get to be either silent or active, and the reality is that the active partners actually do more for the government than the silent partners who are paying high taxes.

David:
I think part of fixing some of these misconceptions has to do with the language that we use when we talk about the tax code. I was thinking when you were talking, there’s a lot of guys that’ll complain, “Oh, my wife’s making me do a date night with her,” as if this is a terrible thing, right? I think a date night with your wife, that strengthens your relationship, that makes you happier, that makes her happier, that lowers your likelihood of having divorce or big, bad fights that decrease your work performance.
It’s good to have date nights, right? Don’t say, “I have to do it.” Part of the language with the tactical is we call them loopholes, which there is this projected meaning behind that that you’re cheating, that you’re getting away with something, that you’re exploiting the tax code. But when you talk about it, Tom, you often portray it in a way like, no, they’re there because the government wants you to use them. They are incentivizing you to do this because it’s better for the economy as a whole.

Tom:
Yeah. Loopholes are unintended consequences of the tax line, and are they there? Absolutely. Are there people who take advantage of them? For sure. But when we’re talking about how the government really works, these are incentives, these are on purpose and the government benefits from them financially as well as socially. It’s not just the government’s promoting the economy or promoting social causes or promoting clean energy or whatever. The government actually makes money on this.
I actually took examples in Win-Win Wealth Strategy and I just took examples, I said, “Well, look, here’s what the government gets, here’s what the taxpayer gets.” Well, why have the … I agree with you, David, that the challenge is we’ve got this idea that the wealthy don’t pay tax because they’re cheating and that’s … By the way, I find that a complete affront, and all CPAs find that as an affront because that means that the CPA profession is complicit in that cheating because all rich people have CPAs.
Right? I actually find that very offensive. The reality is that it’s not the rich peeler cheating. I’ll tell you who cheats, and if you look at the IRS numbers, it’s people making a $100 to $200,000 a year, it’s the contractor who comes to your house and says, “It’s $120, but if you give me cash, it’s only $100.” Right? Those are the cheats. Cheaters have this idea that it’s a zero sum game, that either the government wins or I win.
The idea behind what most of the tax law is it’s a win-win. The government wins and you win. Now, can you lose and the government wins? Absolutely. The government always wins. That’s the point. The government-

David:
Yes.

Tom:
… always wins. The question is, are you going to win as well, or is it just the government who wins?

David:
That’s a better way of stating what I meant in the beginning when I was saying sometimes the government wins more. It’s more just the government is winning and you’re not. That’s the default state that most people listening to this that are just working a job. The government’s getting their taxes out of your check, you don’t get a say in it. It’s going to come out before. You don’t always get a say in where that money goes.
When you’re working with the government, both of you are winning. I like how you restated that. The government’s going to win, how do you make sure that you win also? I also love that point about the people who are cheating in the tax code are the ones that are getting paid under the table, not reporting their income. Right? Doing some of that work on the side. That doesn’t get talked about a lot. I’ll throw this in as a caveat to the few people listening to this going, “Yeah, but I save a lot in taxes.”
It always seems like a good idea until you want to invest in real estate and you need a loan, and then all of that comes crashing down when you realize, “Wait a minute, I’ve got all this money. Look, I’m showing it to you,” and we’re like, “What’s on your taxes?” “Well, why do you need those? What does that matter?” That’s what every single lender is required to use if you’re getting a conventional loan and you can lose a lot of money not investing because you tried to save in taxes.

Tom:
Yeah. Let’s talk about that for a second, because what’s really going on is how big a game are you playing, right? Why is the bank asking for that information? It’s because most people at those lower levels of borrowing don’t have real financial statements. Most of them, the only financial statement they have is their tax return. If you go to a big real estate developer, they’re not looking at their personal tax returns. I guarantee it. I have a lot of clients in that business.
They do not look at their personal tax returns. They’re looking at the cash flow from the property, they’re looking at what’s the real money here? What’s the real risk here? The challenge is that because people never overstate their income on the tax return, they’re going, “Well, most conservative view of a person’s finances is going to be their tax return.” That is true. It is the most conservative view. But it doesn’t mean you can’t overcome that.
But you’re absolutely right, David, that … I get that question a lot. Okay. Wait a minute. I reduced my taxes to zero, which means I reduced my taxable income to zero, and now the bank’s saying, “I’m not going to give you a loan.” Are there ways to deal with that? There absolutely are. But you do have to be thinking about how big of a game am I playing here?

David:
Oh, I really like that idea. You got my brain going. The size of the game we decide we’re going to play determines the strategies we’re going to use. You can feel like you’re outsmarting someone getting paid under the table when you’re playing a small game. Minute you’re starting to look at a bigger game, you’re like, “What was the benefit of saving $9,000 in what my taxes would’ve been to miss out on building six figures of wealth many times over investing in real estate over a long term period?”
As I have had more financial success, particularly in the last couple years, I’ve seen an exponential growth. Taxes used to be mildly annoying, like a mosquito bite, and now they’re like a shark bite. They will take you out of the entire game completely if you can’t manage them, or it’ll remove all your incentive to work hard when you get to where you’re paying so much of that money in taxes.
That’s something that you’re passionate about, is helping people save money in taxes. I have been forced to learn how to … I don’t want to say avoid paying taxes. It’s more, how do I build wealth in the way where I don’t have to pay taxes? Right? It’s just shifting the way that I’m playing the game or the size I’m playing the game. What’s your thoughts on when people should start making that mindset shift?

Tom:
Well, it’s when do you want to start playing the bigger game? That’s really the question, right? I have noticed over the years that this is not the smaller pockets podcast, this is the BiggerPockets podcast, and you guys are all about let’s get bigger pockets, let’s play a bigger game. What happens is that people, when you don’t understand how the game is played, then you try to take shortcuts and that’s what gets you into trouble, frankly. It gets you into trouble with your lenders, it gets you in trouble with the government. The reality is that the more income you make, the more taxes you pay. But the more wealth you build, the less taxes you pay.

David:
That’s good.

Tom:
That’s actually, to me, the big distinction. I don’t ever say that the rich don’t pay taxes, because a lot of what we think of as rich people, people have high income, pay a [inaudible 00:24:21] lot of taxes.

David:
Doctors, lawyers.

Tom:
Doctors, lawyers, entertainers, football, professional athletes. They pay tons of taxes. But wealthy people do not, and that’s the difference.

David:
How are we defining-

Tom:
Wealth is measured in terms of assets and it’s not high income, it’s high wealth.

David:
Is it safe to say your definition of wealth, and probably the definition I go off as well, is more your net worth and owning assets that are producing income so that your income is coming in a way that’s more desirable? It’s different than trading time for money. Riches would be your yearly income, and maybe … Yeah, I guess it would be that simple. Right?

Tom:
Yeah. I go through a very simple analysis. Of course, I’m an accountant, so I look at income statement balance sheet, right? If I look at an expense, I’m going, “Why am I spending this money in my business?” It’s probably to make money, right? That’s why I’m spending the money. When I look at an asset, why am I buying this asset? It should be to increase my cash flow, right? It should be to increase my income.
Then I look at the debt side, I’m going, “What’s the purpose of the debt? The purpose of the debt is to buy the asset.” What really comes down to is, as long as we’re building the asset and liability side of our financial statements, the balance sheet is where our focus should be, and the cash flow statement, not the income statement. The income statement could really well be zero, and for a lot of people, it is.
But for a lot of professional real estate investors, that income statement shows zero, because their expenses completely offset their income. But their balance sheet keeps increasing, their net worth keeps increasing, and their cash flow keeps increasing. It’s really about cash flow. It’s really all about cash flow, as you know. As long as your … If your cashflow is increasing, how much faster does your cashflow increase if you’re not paying taxes? It’s exponential.

David:
One of the ways that, probably at least in my experience, the most popular and most efficient way of saving in taxes while also increasing cash flow is buying real estate and then using cost segregation studies to accelerate your depreciation. Could you briefly describe what I just said, and then talk to us about how the tax code is changing in regards to how we execute that strategy?

Tom:
Yeah. Absolutely. Basically, here’s what the tax law says, is that when you buy a piece of property, you’re really buying four different subsets of the asset. You’re buying the land, the building, the land improvements and the contents of the building. They’re saying, “Look, land doesn’t wear out. We’re not going to give you a depreciation deduction. Depreciation’s for wear and tear. There’s no wear and tear on land. The building wears out, but it wears out over a long period of time. If it’s residential, it’s probably in the 25 to 30 year range, and if it’s a commercial building, it’s probably a lot less, maybe 40 years.”
That is true, by the way. I’ve owned both, and let me tell you, commercial buildings, wear out not nearly as fast as residential buildings. Residents tend to be much harder on the building. Then you have the improvements, land improvements, like landscaping and fencing and all that kind of stuff. How long does that wear out? Well, typically the law says 15 years, and for the contents, they say, “Well, that wears out really fast, probably over five to seven years.”
What happened in 2017 though under the Trump tax act was the five year and the 15 year, rather than depreciating over five and 15 years, those parts of the purchase get depreciated day one. In other words, 100% write-off day one. Well, if you think about it, typically … By the way, I’m using estimates here, okay? Please do not use these numbers on your tax return. But typically, the purchase price of the content’s going to be somewhere between 15% to 20% of the purchase price of the project and the land improvements are going to be somewhere between 5% and 10%.
In total, you could have 20% to 30% of the purchase price that’s deductible. Well, okay, let’s say buy a million dollar property, that means that you might have as much as $250,000 to $300,000 deduction in year one, and you only have to place that in service by the end of the year. You don’t even have to place that in service that’s not over the year. That’s in year one, the minute you place it in service. Well, that’s been a huge motivator for people to get into real estate over the last few years.
It’s one of the reasons that real estate market has been pumped up quite frankly, is that big, what we call bonus appreciation, which is really just a first year deduction for the contents and the land improvements. Remember, you do have to do a professional cost segregation. Please do not try to do this on your own. This is something you need to hire professional. The IRS says, “You know what? This is totally allowable. It is actually technically required in the law, but you do need to do a professional cost segregation.” Don’t let your accountant say, “Well, we’re just going to do some quick and dirty allocation.” That’s going to get you into trouble,

Dave:
Tom, I want to get into the bonus depreciation, because I understand that there is some changes coming up to that over the next couple of years that I do want to get into. But could you tell us and our listeners a little bit more about some of the other, as you call it, win-win situations and win-win strategies that real estate investors could be thinking about in 2022 to reduce their tax burden this year?

Tom:
First one is debt. Okay? Think about this. Take that million dollar property. You could put down a million dollars and get a $250,000 deduction, or you could put down $200,000 and get a $250,000 deduction. That’s a big difference. What that means is if I had a million dollars to invest, instead of getting a $250,000 deduction, I could literally get a million, $250,000 deduction. Right? Because I’m getting it on every single …
I could do five times as much, right? I can do five times as many acquisitions, five times as much property. The point of the balance sheet is not … You don’t want to just increase your assets. Frankly, you also want to increase your liabilities. The government really does incentivize debt because you’re creating … As we all know, at least here we know, that debt actually produces money supply, right? Te government wants that money supply to increase and they do that through debt.
That’s the reason that the Fed is putting the interest rate higher is to try to reduce the money supply, at least limit the money supply, but they’re continuing to incentivize through debt. Debt is really … Number one’s bonus depreciation, which starts phasing out next year to 80% and then down to 60% the year after that. Number two would be debt. Number three is probably … Well, actually before that is even business. One of the things I always tell our clients is that, “Look, you really need to treat your real estate like a business.”
When it’s really treated as business, business gets the most deductions. You’ve got business deductions, you’ve got real estate deductions. The third thing that is a really big one for real estate investors is solar. Solar has, this year, a 20 … Let’s say you take and you put $100,000 of solar panels on your rental property that you’re renting out. Okay? You get a $26,000 credit, that’s dollar for dollar, plus an $87,000 deduction. You’re basically paying a third of the cost of the solar.
Well, people say, well, I hear this all the time, “Well, solar’s not a really good investment.” I’m going, “Well, not if you’re paying 100% of it. But if you’re up only paying a third of it, it actually turns out to be a really good investment if you’ve got a lot of sunshine, if you’re in the right location.” Like I am in Arizona or people in Colorado or some other places in the Midwest, you get enough sunlight. Solar can actually be a really good investment.

David:
Well, that’s a really good topic to point out, is that when you start getting tax incentives, it changes the structure of the investment that you’re making. Like you were just describing, if you buy a million dollar property, let’s say you get a $300,000 write-off, let’s say that turns into a $100,000 of tax savings in that case, and you’re going to put 20% down on this property. Your competition has to put $200,000 down to buy it. Maybe their ROI is 8% on that.
Well, you only have to put $100,000 down because you’re saving $100,000 in taxes, which now doubles the ROI to 16%. That asset is now much more desirable for you than it would’ve been to someone who doesn’t get that same tax benefit, or if you bought it without the tax benefit. This is one of the ways that the people that structure the way that they build wealth put themselves at a competitive advantage because they’re increasing the desirability of the same asset that somebody else could be buying.
The same happens when you utilize things like 1031 exchanges, right? I see this a lot where someone will say, “How on earth is that guy going to pay this much money for that fourplex in San Jose? It’s not worth it. He’s going to make it 2% return.” Well, he’s saving $800,000 in taxes to put that money there. It’s much higher than a 2% return for that person. This is one of the reasons that I’ve been doing a better job of telling people, “You need to get a good CPA. Not a CPA.”
It’s not just, “Hey, stop doing turbo tax and actually hire someone.” Right? It’s get one who understands this stuff and be flexible with the way that you go about building your wealth. There’s a difference between working more hours at your W-2 job, which I foolishly did as a cop forever. I would work 100-hour weeks, and then I would turn around and give up 40% of my money in taxes.
It was like I was barely making more than the guy who was just working his regular job, because I was getting hammered in taxes so bad. You start to see momentum getting built. You mentioned, Tom, that bonus segregation is like … There’s some scheduled changes for that. Can you give us a definition of what bonus depreciation is and then what we should expect in the future?

Tom:
Right. Again, bonus depreciation is first year, getting to deduct first year the contents of the building and the land improvements. Right now, that’s 100%. It’s been 100% since late 2017. That percentage is going to go down to 80% in 2023 and down to 60% in 2024 and to 50% in 2025. What that means is that you’ve got a window of opportunity here to get faster depreciation. Now, why do we want faster depreciation? Because we’re going to take that tax savings, you talk about that $100,000 tax savings.
We’re going to take that, we’re going to buy another property, right? We’re going to use that cash for investing and using that … We want our money now. We don’t want to wait to get our money over 27 and a half years. We want to get our money now, because it just multiplies that rate of return so exponentially by getting the money now and be able to put that money to use rather than give it to the government.
Frankly, that’s why the government gives the incentives because they want the money back into the market. Remember, you pay tax when you spend money or when you save money. You don’t pay tax when you invest money. Okay? If you spend it personally or you save it, you’re going to pay tax. But if you invest it back into the economy, back into your business, back into real estate, you’re not going to pay tax.

Dave:
Tom, I think a lot of beginning real estate investors listen to this and think that this strategy makes sense, but it might not necessarily be for them given maybe they’re just starting out. Are these strategies for everyone, or at what point and what level of cash flow and wealth do you recommend people start pursuing these strategies?

Tom:
Well, my question would be, at what point do you want to stop paying taxes?

Dave:
I just think-

Tom:
That’s the question.

Dave:
I don’t know, David, maybe [inaudible 00:36:40] say, but for me, when I first started, I was like, “I have so much to learn, and I was trying to learn about cash flow and property management and running my business. I was like, “Oh, at a certain point, I’ll learn more about taxes because that’s a champagne worry because I’ve already made it and I’m making money.” Or at least that was my opinion back then. I guess it’s a question of priority, right?
Where does this fall in terms of your priority, and is it worthwhile for someone who maybe just has one property or two properties, are they really going to see the benefits in wealth or cash flow that they get maybe from … Is it worth it to spend the money on either professional cost segregation or a good high quality CPA?

Tom:
The cost segregations are not that expensive. They’re not. Because if you got one or two properties, you’re talking about smaller properties. Takes less time to do the cost segregation. I have found on any property, certainly any property of $100,000 or more, it’s worthwhile. Okay? It’s going to be worthwhile easily on $100,000 or more. The question about hiring a good CPA is a question of how big’s your game, right?
Are you talking about, “Well, I just want to have one or two properties. I’m going to pay cash for them. I’m following the Dave Ramsey schedule of investing?” I’m going, “Tax, probably not a big deal to you, right? Because you’re really playing a very small, slow game.” If you’re going, “You know what? I’d really like to not have to work. I like my work, but I don’t want to have to. I’d really like to have more time to spend with my kids, my grandkids,” for me, it’s grandkids, more time to do what I want to do, just realize that taxes are probably your single biggest expense.
Probably your single biggest expense. The question is, which expense do I spend time on? Do I spend time on my business expenses or do I spend time on my tax expenses, which is going to be more productive? It’s really easy to reduce your taxes. It is really fast and really easy. Once you get the concepts. When I write books, I write them for the average person. I don’t write them for the CPAs. I find that complete waste of time because a lot of CPAs think they know everything anyway.
What I do instead is I write them for the entrepreneur, the beginning investor, and I want to make sure that at least you’ve got the concepts and that you can say, “Okay, whoever my CPA is, whoever my tax advisor is, do you understand these concepts? Do you follow things?” I literally had a … My wife’s a CPA. She sent me a note. She goes, “By the way, your name came up in the online form at the Arizona Society of CPAs.” I said, “Really? What’d they say?”
They said, “Well, one of the prospects …” Some entrepreneur was saying, “I’d like to know if anybody follows Tax-Free Wealth,” my first book, “and Tom Wheelwright and if they do things the way Tom talks about them.” The question was, is this a scam? I’m going, “Well, maybe I’d just read the book and see what you think, see if you think it’s a scam,” because the reality is that I’ve actually … Tax-Free Wealth has been out 10 years now, and I’ve never had any accountants say this is aggressive or this is wrong. Not even one. That’s with over 3,000 five-star reviews on Amazon. Taxes just aren’t that hard. To understand the basics and building a team is what investing is all about. It’s a team sport.

David:
With the changes in the tax code, what’s your opinion on why those are going away and what people can do about it?

Tom:
Well, they were scheduled to go away, right? Bonus appreciation, unless we get a new administration 20 … Certainly nothing’s going to happen before 2025. That’s the soonest anything’s going to happen because the current administration is just going to let them phase out. I guess if you had an override available in Congress and the Republicans took over Congress by boatloads, could they override a veto and do a … I don’t think there’s a big push for that. I think right now the one thing that …
The solar’s phasing out. Solar is at 26 now. It used to be at 30. It’s going down to 22 and then it goes way down. I think that’s something that you could literally write your congressperson about. You could literally write your senator about. I think there’s a lot of people who would like to see that. They just don’t want to see the tax, the revenue offsets on the other side of it. Right? I do think that that’s possible, is to actually see some changes on the solar side. I don’t think the depreciation’s not going to change before 2025.

Dave:
Do you think that people … It sounds like if people are interested in solar, now would be a good time to do it, if they’re waiting around for that.

Tom:
Here’s the problem, Dave, is that we’ve got a big shortage of solar panels and a lot of this is the whole China thing, right? If you’re going to get them installed by the end of the year, you’d better act right now, because otherwise, you’re not going to have them installed. You’re not going to get that … You’re going to lose 4% of that tax credit. It’s going to go from 26 to 22 before you can get them installed. The solar is something you need to act on right away, and it’s …
Again, the numbers can be big. If you’ve got multi-family, you can basically have your own little private utility, and then basically charge your tenants for the utilities, and that’s actually a pretty decent money maker if you set that up, but it’s going to take you four or five months to get that done. There is urgency for sure on the solar side.

Dave:
That’s a great point. I’m thinking about it for a short term rental. I’ve always thought about doing it, and unfortunately with short-term rentals, it’s not one of the investments … At least I’ve never heard of someone passing along utility cost to a short-term renter, prorating it based on what they use for a weekend or something like that. You’re usually stuck with that.

Tom:
But you’re paying the utilities on that, right?

Dave:
That’s what I mean. Yeah.

Tom:
If you’re paying the utilities, you get the benefit right away.

Dave:
Yeah, exactly. You can get the tax benefit. I think electrical on some of these nicer short-term rentals, maybe I have an electric hot tub, for example, it’s a huge expense. If you can offset that-

Tom:
Sure.

Dave:
… especially in Colorado, there’s abundant sun, that could be a really good investment. Tom, I wanted to ask you, you’re talking about some of these tax incentives that have been planned to phase out, and I know this is probably nearly impossible to quantify, but do you believe that the way these tax incentives have been structured has led to an increase in real estate activity over the last few years? Do you see your clients and people acting and being more active than they might normally be because of these tax incentives? Is that playing into the appreciation we’re seeing in the housing market?

Tom:
Oh, no question. I don’t think there’s any question at all that they played a huge part. Anecdotally, I have clients that they were not investing until they heard about the tax benefits and these guys do a lot of real estate, and yet they weren’t really motivated to do it until I said, “Well, wait a minute. Look at the cost, the cost benefit analysis to doing the real estate yourself instead of just being tagging onto somebody else’s real estate.”
There’s no question, and no question it’s helped push prices up, there’s no question that it’s helped increase the number of rentals that are out there. The whole goal, right? For the government from a social standpoint is we need housing. We’re still short a lot of housing units. I think it’s been very successful. I haven’t done any studies in that regard. I can just tell you, anecdotally, my clients, definitely, it’s had a big impact.

David:
When it comes to this game of taxes and there’s different ways that we can partner with the government, what are some of the common ones that if someone’s trying to figure out where they could jump in, that they should start off considering?

Tom:
Well, you always start with the education. Start with my book, The Win-Win Wealth Strategy. Actually goes through seven investments the government will literally pay you to make. The last chapter is how to get the government to pay for your Ferrari, which actually use a real life example. While the government’s not trying to encourage you to buy Ferraris, they are encouraging you enough that the benefits can be so high that you could afford to buy a Ferrari with the savings from the tax savings.
There are huge opportunities, but the first thing you have to understand, we’ve got to change this … Just what you started with, David. We’ve got to shift our mind from these are loopholes, to these are intentional tax benefits and this is something the government actually wants us to do. We’re not being bad people. We’re actually being good people. I will tell everybody, if you’re paying high taxes, you’re not nearly as patriotic as somebody who’s actually using these incentives and doing what the government wants done, the way the government wants them done, being an active partner with the government.
The government makes way more money, and I show that in Win-Win Wealth. The government makes way more money with active investors than they do with the silent investors. I think we’ve got to change our mind shift first. I do think we need to have a team, because I think that team is critical. The tax lie is very complicated. Don’t get me wrong. The concepts are very simple. The tax law itself, lots of details, you do need a team around you. You need that lending team, you need the finding team, you need the selling team, you need the advisory team, right?
You need all of these team members and investing as the team is much more … Frankly, it’s a lot more fun and a lot easier than investing yourself. I think it’s a waste of time to do things yourself that somebody else can do better than you. Those are really the keys to me. It’s less choosing which investment. I think for me, it’s … Choose one that you like doing. If you like Airbnb, do Airbnb. If you like single family home, long-term rentals, do that. If you like industrial, do that. If you like triple net lease, do that. Whatever it is you really enjoy doing, do that.

David:
Yeah. I think that’s a good point. It can be addicting in our space where there’s so much information to consume all the time. You could never get through all the videos in YouTube, even on one asset class in your entire life.

Tom:
Of course.

David:
You’re learning, you’re learning, you’re learning. Your mind’s exploding with possibility. You get this feeling of progress and it’s like the dopamine is getting released as you’re, “I could do this and I could do that.” You start envisioning this life you want to live. Then you’re like, “All right, I got to learn it all,” and it’s like trying to download 700 movies on your computer at the same time. You never even get one of them actually finished.
What I’ve learned as I’ve progressed is I need to learn just enough to get the basic idea, then find the team member that already knows how it works. I will have people that will message us here on BiggerPockets or submit a question that’s a very nuanced and detailed question about a loan. I was like, “You don’t need to ask me that. That’s a question for your loan officer. They know that immediately, and that’s not hard for them, and it’s silly for you to even be trying to figure that out.”
It’s like, I need to go learn how cars work before I drop it off at the mechanic’s office. No. You know there’s a problem, you know you trust the mechanic. Let them figure out what it is. Same is true with taxes, right? I would just definitely second the opinion that once you find a person that you trust, you get a solid referral, you go to the professional and you say, “Here’s my problem. How would you solve it?”
That’s one of the litmus tests that I have when I’m picking a team member. “Hey, this is my hurdle with getting a loan. How would you solve it? Hey, I need to find a property that looks like this to a real estate agent. How would you solve it?” What advice do you have for what people should be asking when they’re trying to find their team member to handle their taxes?

Tom:
I actually think one of the most important things is, tell me what the system is you use for doing this. Because I don’t want everything to be a new decision. I don’t want you to have to handle everything as a new decision. I don’t want you to have to look everything up. I want to make sure that you’ve got a system that you use and you use the same system over [inaudible 00:49:25] Yeah, I get every taxpayer’s different to some extent, but you’re following a systematic approach to it.
It’s those few CPAs that have a systematic approach and there are very few of them, frankly. It’s that systematic approach that makes a big difference. Until I really understood the patterns of the tax law … 20 years, ago I was doing it like everybody else. Right? Give me a question. I’ll try to figure out the answer, until I figured out, you know what? There’s patterns here, and once you have patterns, then now you can actually predict what the tax savings are going to be.
You can predict what the result’s going to be, because you identified the patterns and you’ve set up a system, and now I’m just going to take you through that system. We talked about this before, David, but I find that the difference between a professional investor and amateur investor is an amateur investor makes a new decision on every investment, and a professional investor makes a single decision and just applies that decision over and over again. The same’s true with a professional advisor, by the way.
A professional advisor makes a single decision and say, “This is how this works, and I’m just going to apply this over and over again.” Right? As opposed to looking at every single question as unique. We need to look at every question as, okay, here’s the pattern, I understand the pattern, and so this is likely what’s going to happen. Now, am I going to research to make sure I’m right? Absolutely. But I better have a pretty good idea going in what I think the answer’s going to be coming out.

David:
Tom, for those that are intrigued by what we’re talking about, what can they expect if they get your book and where can they find it?

Tom:
Well, first of all, the book title is The Win-Win Wealth Strategy: 7 Investments The Government Will Pay You to Make. You can get it Barnes & Noble, you can get it Amazon, you can get it anywhere books are sold, or you can get it at our website, winwinwealthstrategy.com. You’re welcome to get it there too. Wherever you want to get it. What you’re going to get is a whole different viewpoint, and I think you’re going to be able to … It’s going to help you get comfortable with your ability to reduce your taxes.
It’s not just an instruction guide for you to reduce your taxes. It’s actually … A little bit of it is for you to know that what you’re doing is a good thing, that you’re actually contributing to society. You’re contributing to the housing market. You’re contributing to the commercial market. You’re contributing to the industrial market. You’re contributing to the energy resources. You are actually making a positive contribution to society.
I think that that mind shift is so important because now we’re not so hesitant. We all have glass ceilings that we put on ourselves, right? The glass ceiling is, “Well, I’m not a good person if I make more than this much money,” or, “I’m not a good person if I only pay this much tax.” I think we need … One of the goals in investing is to get rid of those ceilings and take that ceiling off, and at that point, now the sky’s the limit. But until we take those ceilings off, I think we’re always going to be doing self-limiting behaviors.

David:
That is awesome. I love it. Before I get us out of here, Dave, did you have any last words that you wanted to leave people with? You’ve been a fly on the wall and I could just see the wheels turning in that smart brain of yours.

Dave:
No. This has been super helpful, Tom. As I said, I’m a novice when it comes to taxes. I’m trying to learn a bit more and I’m looking forward to reading your book and I’m definitely going to think about how I can apply some of the things I’ve learned here today before the end of the year to try and produce my own taxes next year.

David:
All right. Well, thank you very much, Tom. This has been fantastic. I really appreciate when you come and share your knowledge with us all. We’re all better for it. This is David Greene for Dave, The Champagne Strategist, Meyer. Signing out.

Louis Kuijs of the credit rating agency says housing sales in the country remain weak, though there was some improvement in May and June.